What Is Tax Deductible On A Mortgage?

Tax savings are real dollars, so don't forget to take this benefit into consideration as you make decisions regarding your mortgage financing. As you probably know, most mortgage interest is generally tax deductible. For example, being in the 28% federal tax bracket has the effect of lowering your borrowing costs by almost a third. In the early years of a loan, much of the monthly payment is interest, so these savings can really add up.

1Real Estate Taxes
A major tax deduction many real estate buyers overlook is the taxes that they paid on their home. You should use your tax statements that you received from the county/city to document these deductions.

2Mortgage Interest Paid For The Year
You will receive a 1099 showing the amount of interest paid on the mortgage. Make certain that you use this documentation to support your "write off" of your mortgage interest paid.

3Mortgage Insurance (PMI/MIP)
With households that have income less than $100,000 this cost should be tax deductible. It is important that you contact your tax advisor or visit the IRS website at www.irs.gov or http://www.irs.gov/pub/irs-pdf/p530.pdf

4Pre-Paid Interest
Pre-paid interest is deductible in the year it is paid. This is money paid up front, usually in the form of points (or a percentage of the loan amount). This is usually done to secure a lower interest rate.

5Home Construction Loan Interest
If you are building a home, the interest on the construction loan is deductible (if the construction loan is in your name). The construction period cannot exceed 24 months prior to the date that you move in if you claim this as your primary residence.

6Home Improvement Loan Fees
If you paid a loan fee to obtain a home improvement loan, that loan fee is fully deductible in the tax year it was paid.