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If you already own a home, then you, too, need to get ready for spring and more specifically, April 15. By now, you should have all of your home-related papers in order to make the most of your home mortgage interest and property tax deductions, according to Gary McKinsey, a tax consultant with Grimbleby Coleman CPAs Inc. in Modesto. "Get your papers together and organize them," he recommends. That way, you'll be ready when it comes time to meet with your tax professional.
Here are some of the ways you might be able to get some money back come April 15, according to McKinsey.
If you purchased your home in 2005, the following costs are deductible: paid points or loan origination fees, mortgage interest, late payment fees, and property taxes you actually paid.
If you sold your home in 2005, be sure and check your closing escrow statement for the following deductions: proration of property tax and loan prepayment penalties.
If you chose to refinance last year, check to see if you had any prepayment penalties for paying off the old loan early. Those are deductible. The points or loan origination fees on the new loan are not deductible in full but can be amortized over the life of the loan.
If you refinanced to get cash, then the interest paid on the cash, borrowed in excess of $100,000, may not be deductible depending upon its use. Borrowed money used to make a down payment on an investment property will be deducted as investment interest expense. If it's for a rental property, it will be deducted against the rental income on the rental schedule.
For home improvement loans, the points or loan origination fees incurred are fully deductible. The interest paid on home-improvement loans is also fully deductible.
McKinsey says it is important to realize that only some of your property tax bill is a write-off. "We remind our clients that not all amounts paid as part of the property tax bill are deductible. For example, amounts paid to fund bonds for streets, sidewalks and sewer improvements are not deductible."