We are applying for the house mortgage. We can't decide if we should take points or not..I read a book and it said points can use for deducting tax,,,but no further explainations...anyone, expert, can answer this mortgage &tax question?
2006-09-05 08:34:43 · 6 answers · asked by Clare L 1 in Business & Finance ➔ Taxes ➔ United States
on a schedule A..do not do points if you won't have enough to itemize, as many people do not the first year of home ownership..although you can prorate the points over the life of the loan
2006-09-07 09:58:58 · answer #1 · answered by Billie 5 · 0⤊ 1⤋
Tax part of the question answered....Yes the points are deducted on the tax return. So is the intrest paid and taxes paid on the property that accured in that tax year. So any taxes, points, and intrest paid in this year, 2005 before dec 31 2005 will be on ur 1098 from the bank or mortage company. Everything on the form will be used on ur taxes... A schedule A will be used. It's not deducted dollar by dollar on a schedule A... everything is added up at the end of the schedule then a percentage is used on the 1040. If the figure is higher then what u will get on ur standard deduction then U had itemize. Schedule A - includes gifts or cash to charities, job expenses, union dues ect.
2006-09-06 06:28:14 · answer #2 · answered by csabrinam 3 · 0⤊ 0⤋
On the first mortgage taken when you purchase your home you can take a deduction for all of the points paid in the year you got the mortgage. This amount adds to interest paid on your loan, taxes paid on your home and other deductible items on schedule A. This will only help you if the total of all these items is higher than your standard deduction. The amount of the standard deduction varies depending on your filing status, ie married filed joint, single etc.
2006-09-05 14:17:09 · answer #3 · answered by irongrama 6 · 0⤊ 0⤋
Yes, you can deduct points paid on a mortgage. However, you have to amortize them over the life of the loan. That means you can't deduct them at once. For example, if you pay $3600 in points and you have a 30 year mortgage, then you can only deduct $10 per month in points ($3600 / 360 months) until you pay off the loan. If you refinance the mortgage, then you can write off the remaining points because you paid off the original loan with the new loan.
2006-09-05 15:11:20 · answer #4 · answered by Steve 6 · 1⤊ 1⤋
In the first year of owning a home (the year the loan was originated) you have the ability to deduct from your gross income the interest paid, pre-paid taxes and any points paid during the loan process.
After the first year, only the interest expense and taxes can be deducted.
However, you should consider buying points more for the savings over the course of the loan than for the small tax break in the initial year. A 1/2 point interest change can save you thousands of dollars over the course of the loan.
Hope this helps!
2006-09-05 08:40:55 · answer #5 · answered by wrkey 5 · 0⤊ 1⤋
Points are kind of a grey area. You are entitled to deduct interest costs when you pay them. The IRS interprets this to mean that the points should be amortized over the life of the loan. An aggressive stand is to assume that the points were in fact paid at closing and can be deducted in that year. If it makes much difference to you, you should go to a pro who will support you under audit, if it should come to that.
2006-09-08 08:59:01 · answer #6 · answered by Scott K 7 · 0⤊ 0⤋