First-time home owners
• What are points?
o Fees paid to your lender when applying for a mortgage or loan.
o If paid up front, can be tax deductible
o Only tax deductible if the loan is for the purposes of purchasing or improving your personal property. Investment properties will not qualify.
• Criteria you must meet in order for the points to be deducted the same year you pay them
o The area you live in must recognize these points.
o There is a limit on the amount of points one can pay.
o Use cash method of accounting expenses.
o Amount should be calculated using your loan principal.
o Your down payment cannot be less than the point amount paid.
o Outline the points as points charged for a mortgage on your HUD-1 statement.
o Points should not be listed with appraisal fees or any other fees, they should be separate.
How can you use refinancing as tax deductible?
• You distribute the amount over the life of the new loan, you cannot use the entire amount as a deductible for that year.
• If you choose to use part of refinancing amount to upgrade your home and decide to pay for the points out of your own pocket, you can write off the percentage of the points the same year the points are paid.
Are property taxes deductible?
• You can deduct property taxes from your taxes if you pay back the seller for taxes they might have already paid for you.
• If during closing you choose to pay the property taxes owed by the seller, you will not be able to include this amount in your taxes.
• Make sure to note all improvements you make to your house. This will add value to your house and can increase the value of your property.
• For those who are filing as single, you can exclude as much as $250,000, for those filing jointly you can exclude as much as $500,000 on the sale of your primary residence.
Contributor, designer & admin for JohnHart Gazette.
