Are My Mortgage Loan Payments Tax Deductible?

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Many first time home buyers have questions about the home buying process. From credit scores to down payments, a lot of the financing side of buying a house can be overwhelming. Taxes are on of the major subjects many people question. Property taxes, estate taxes, tax deductions...it's a lot to digest. And all of this information leads many first time home buyers to ask: Are my mortgage loan payments tax deductible?

The short answer is no, not exactly. But we need to explain more than just a one-word answer. Because buying a home is one of the biggest ventures you'll ever face, you need to understand as much as you can about it. Keep in mind that AmeriFirst Home Mortgage is not an IRS expert, nor are we tax accountants or attorneys. Always consult a professional when looking at your specific situation. We'll cover the generic situation of buying a home and taxes.

How much of a break you get on your taxes will vary depending on certain factors. However the IRS has laid out solid rules. The agency also offers tax publications full of helpful information. Publication 530 “Tax Information for First−Time Homeowners” is thorough. Also consider Publication 936, “Home Mortgage Interest Deduction.” For quick reference, you can refer to Tax Topics 505 “Interest Expense” and 504 “Home Mortgage Points.” These publications often refer to local and state guidelines, so you should talk to a CPA to answer all the questions that arise from reading these materials.

Here are some basics:

• Property taxes on a primary residence are deductible, whether you're a first time home buyer or you've bought a home before - there's no difference. You can pay Real Estate taxes at settlement or closing, or through an escrow account.
• Pre−paid interest is deductible for the year you pay it. At the close of a real estate transaction, borrowers usually pay for the interest on their loan that falls between the closing period and the first of the next month. Mortgage payments are made "in arrears" so when a loan is closed mid−month, there is interest due to the new lender which must be paid in advance.
• If you use the loan to buy, build or improve a home the interest is deductible. Your lender will provide you with a Mortgage Interest Statement (Form 1098) to list the total interest paid during the year. This should include any deductible points paid for that year. One of the most popular ways to do this to a home is with the FHA 203k. You can roll the cost of home improvements right into the mortgage, making the interest paid on the work tax deductible.
• Interest on a construction loan is deductible if you’re building your home. The construction period cannot exceed 24 months prior to the date that you move in if you claim this as your primary residence.

You can learn more about the home buying process with the "Get Mortgage-Ready Kit" we published. The focus is specifically first time home buyers, but it helps any buyer looking to change homes. This article is an excerpt from that eBook, so if if you find it useful, be sure to download the full version. Get your free copy at the button below.

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