- Posted by Jordan Blakley
Mortgage Interest (Including Refis, Seconds and HELOCs)
The IRS lets you write off the interest on up to $1.1 million in mortgage debt on your first or second houses. First, you get to write off interest on $1 million in "home purchase debt." Home purchase debt isn't only money that you borrow to buy your house, though. It also includes loans that you take out to improve your house, repair it, or renovate it. Home equity loans or home equity lines of credit often fall into this category.
You can also write off the interest on an additional $100,000 in "home equity debt." Home equity debt is money that you borrow against your house for any reason, even if it has nothing to do with your house. The IRS doesn't care where the loan comes from. As long as the loan is secured by your home, it's deductible whether it's a purchase mortgage, a refi, a second, or a home equity line of credit.
Discount Point Deduction
If you pay points to buy down your loan's interest rate, they can be deductible, too. The IRS's rules for discount points are a bit fuzzy, but if you meet them, you can save on your taxes. For a new loan, discount points are deductible in full when you take out the loan. With a refinance, though, you have to write off the points over the life of the loan. If you pay $2,000 in points and take out a 15-year loan, you'll get to deduct $133.33 per year every year until you pay off the loan. You also have to pay the points in cash, and they have to be clearly identified as discount points on the closing statement.
As long as you itemize your deductions and aren't subject to the alternative minimum tax (AMT), your property taxes are deductible. The IRS lets you write them off on as many houses as you want.
Home Office Deductions
If you are have a home office that qualifies, which can happen if you are self-employed and work out of a dedicated space in your house, almost all of the expenses related to your home office are deductible. You can allocate a portion of your property tax and interest to your home office, if you want. You can also write off the cost of anything you provide just for the home office -- like a dedicated fax line. The IRS even lets you write off a proportional share of any other expenses that benefit the home office.
This means that if your home office is 15 percent of your house, you can write off 15 percent of repairs for the benefit of the whole house and 15 percent of your electric bill, among other things. If you don't want to do all of that paperwork, you can also choose to claim a flat-rate home office deduction, although it might be worth less than breaking everything out.
We've linked to the original material from the IRS, but the above information is broad, and may not apply to your specific situation. You should consult your own tax advisor for specific tax advice to see how this information may apply to you.