How a Mortgage Can Reduce Your Tax Bill
Milford, NH New Homeowners Seek Advice
The money paid toward your mortgage interest reduces your adjusted gross income. This brings down your taxable income, in some circumstances even putting you in a lower tax bracket. To take advantage of this potential savings, you must deduct your mortgage interest from your annual tax bill.
A family in Milford had just purchased their first home. They were curious how this purchase would affect their overall tax bill for the year.
For Homeowners, Understand What is (and isn’t) Tax Deductible
Homes purchased after the tax code changes, December 15 2017 and later, can deduct mortgage interest on a principal of up to $750,000. Purchasers prior to that date are grandfathered in at a maximum principal deduction of $1,000,000. The mortgage paid on these loans can be deducted by reporting the amount on Form 1098.
The only closing costs that are tax-deductible are home mortgage interest and some real estate taxes. These can only be deducted for the calendar year that the home is purchased and you must itemize your deductions to take advantage of this savings. Premiums paid for private mortgage insurance (PMI) are not deductible.
Home Equity Loan Mortgage Interest
If you have a home equity loan on your home, the interest paid toward this loan is no longer tax-deductible. This was eliminated in 2018. The only exception to this is when the funds from the loan have been used to “buy, build or substantially improve” a qualified residence. Even in this scenario, the amount of debt that can be deducted cannot exceed $100,000.
The new homeowners in Milford should see some tax advantages resulting from the purchase of their new residence, as they begin to pay interest on their principal. With the help of Merrimack Tax Associates, they will be able to take advantage of these deductions come tax time.