Common Real Estate Tax Deductions

Seeing as everyone is filing their taxes for 2007, I thought I would post what is tax deductible for Real Estate. Please be sure to check with your tax advisor or CPA for rules regarding your state.

Deduct The Points:

If you bought a home in the last year or obtained a home improvement loan, you may deduct many of the costs associated with obtaining the loan, including any points that you paid. A point is equal to 1% of the loan amount. If you re-financed your loan last year however, you can only deduct those fees over the life of the loan or until you re-finance again, in which case you can write-off the entire deduction for that year, plus a portion of the new loan points. Take your closing statement with you when filing your taxes so your tax preparer can include these deductions.

Property Taxes:

Everyone hates to pay these, however they do have the benefit of a tax deduction. If you bought a home last year and escrow prorated the property taxes, be sure to take that deduction as well. Some states do not allow you to take the entire amount paid in property taxes as a deduction, rather they will give you a percentage of the total amount paid. Be sure to take your county tax assesors statement with you when filing.

PrePayment Penalty:

If you re-financed last year and had to pay a prepayment penalty to do so, you can claim this as a tax deduction as well, which can save you thousands of dollars on taxes depending on the amount!

Mortgage Interest:

Another tax deduction that you get as a homeowner is the mortgage interest. If you have an interest only loan, everything you paid to the loan last year will qualify as a deduction. If you made both principal and interest payments, only the interest part is deductible. Lenders typically send you a statement in January regarding what you paid in both Principal and Interest. Make sure to take this with you when filing your taxes.

Relocation Costs:

If you had to relocate last year for a job, typically you can write-off the entire costs of having to move. The only requirements are that your new job must be 50 miles further than your previous job and, that you work at least 39 weeks (78 weeks for self-employed) at your new job for the tax write-off. In some cases you may not have to itemize the deductions, however check with your tax preparer.

Homeowner Expemtion:

In some states you automiatically qualify for a reduction in taxes just for being a homeowner. In California, this amount is $7,000 and is only for your principal residence. Again check with your tax advisor to see if your state has this.

As you can see, there are a lot of benefits to owning a home. In some cases, this can drop your income by over 25%, allowing you to get a bigger refund, or at least, owe less to the IRS.