All homeowners know how household expenses can really add up. However, many don’t understand all of the tax deductions they are eligible for. Knowing the types of home-related tax deductions you are eligible for can save you a great deal of money come tax season. With the 2012 tax filing deadline just days away, brush up on your knowledge of tax-related deductions so you can make the most of your home-related deductions this year.
The three most common deductions for homeowners this year include mortgage interest, mortgage insurance premiums and property taxes. Here’s the lowdown on what can be deducted:
Mortgage Interest- According to the IRS.gov homeowners can deduct any mortgage interest they’ve paid last year. Keep in mind that any amount you paid towards your premium is not tax deductible- only the interest. Mortgage interest is the amount you pay your lender to compensate them for funding your loan. To find out how much mortgage interest you’ve paid contact your lender and ask them for a statement showing how much interest you paid during the tax year in question. Most lenders will automatically send you one at the beginning of each year.
Mortgage Insurance Premiums (PMI)- Allowed deductions change frequently however for the 2011 tax year the IRS is allowing homeowners to deduct anything they have paid in mortgage insurance premiums or PMI (personal mortgage insurance). PMI is an insurance premium that mortgage holders pay to insure their loan. Most lenders require mortgage holders to pay PMI if they put less than 20 percent down on their home. This protects the lender in the event the homeowner defaults on their loan.
Property Taxes- The amount you pay for property taxes is also tax deductible. Most people escrow their property taxes with their mortgage payment similar to their homeowners insurance premiums. Unlike homeowners insurance premiums however, the amount paid towards property taxes can be deducted from your income taxes.