Claiming interest paid on new home?

Question

I hear that when I file taxes, I can claim what I have been paying on my home as of yet and get it back pretty much? If so, how?

I have always filed HOH with two minors and the past two years have claimed 0 so that my checks are bigger and still didnt have to pay/got a nice refund (last years is what gave me the down payment for the home in March. Thanks.

Answer 1

Well, what you've heard isn't quite correct.

When you file taxes, you are able to list the INTEREST payments on your home as a tax deduction (fill out Form 1040 Schedule A). You cannot claim any payments applied toward the principal balance as a deduction. At the end of the year, you'll get a form from your mortgage company telling you how much you paid in interest that year (Form 1098).

Also, claiming it as a deduction doesn't mean that you get all of that money back. It means that you'll get your income tax for that money back.

So, to sum it up, you'll get SOME money back for SOME of what you paid. It's still great, but not quite as significant as you made it sound.

Answer 2

Maybe yes, maybe no.

In the early years of a mortgage, most of the money you paid was interest (and property tax as part of the escrow). You may also have paid points which is another form of interest.

So when you get your 1098 showing the mortgage interest --and the points--paid, you will put that on a schedule A. You will look at all lines of the schedule A and see if there is anything else you can itemize.

If you are single, your standard deduction will be $5350 (MFJ is $10,700). If your schedule A comes to a larger total, you will use it instead.

If you bought the house late in the year, you may not have enough expenses to itemize. In which case, better luck next year--and if this is the case, you would pro-rate the points over the live of the loan and take a little of them each year.

The last poster made a great point. A deduction for interest paid only reduces your income. If you have $1000 less of income, you could have $100 less in tax if you are in the 10% tax bracket. If you have very little income (say some year you lose your job), the deductions won't do you any good.

Answer 3

You choose which way lets you pay less in income tax; you either take the standard deduction allowed for you or take itemized deductions in which case you list all allowable deductions which includes what you correctly pointed out, interest paid on new home.

After listing all allowable deductions compare the total to the standard deduction. Choose the larger figure, that saves you more money when deducted from your income.

The instructions for filling out the tax forms should tell you what expenses you may deduct when you itemize; when in doubt, there is an IRS number you can call to ask questions. That number should also be in the instructions booklet.

It's a bit of a stretch to say you'll get back pretty much what you paid in interest on your home. If your tax rate is 15% and interest you paid is $5000, the $5000 interest paid simply reduces your taxable income and therefore you do not have to pay taxes of 15% on that $5000 income. Without the $5000 interest, you would have paid $750 income tax (15% tax on $5000 income). The interest deduction means you do not have to pay $750 income tax; that's all you get back, not the $5000 interest. If your tax rate is more than 50%, then it would be very significant.savings.



Good thinking, and good luck.

Answer 4

You're right about being able to claim it, but wrong about being able to "get it pretty much back" although you might get some of it, depending on your situation.

Mortgage interest is an allowable itemized deduction. If you are marriedand file a joint return, you have a standard deduction of $10,300 - if you're single it's $5350. If your itemized deductions for the year add up to more than the standard, then you'd "itemize" instead of filing the standard deduction. This means that you'd include a schedule A with your tax return showing your deductions. Some other common itemized deductions are real estate taxes, state and local income taxes, and charitable contributions. You can see the complete list by downloading Form 1040 schedule A, and its instructions, at irs.gov

Your tax benefit by itemizing is the total of your itemized deductions minus the standard deduction, and that number times your tax bracket. For example, if you are married filing a joint return, have $15,000 in itemized deductions, and are in a 15% tax bracket, your tax savings due to itemizing would be (15,000 - 10,700) * .15 or $645.

Answer 5

From whoever you have borrowed money to finance your home, you will receive in the mail a statement of how much interest you paid this year. That interest amount will be lower than the total of your total mortgage payments this year. And since it's your first year of the loan, the two totals will almost be equal.

You will be able to deduct the amount on the paper that they send you from your income. It's a really good deal for taxpayers who buy and finance a house!

Answer 6

You need to file a tax return. In your case you would also have a schedule E for your two rentals. It is a requirement. It is likely you would not have income on the rentals as the mortgage interest, property tax and depreciation expense (which you must take) would exceed the income from the rentals. If you do not file, the IRS will assume income (from the 1099 mortgage interest reported to them) and send you a computer generated letter asking for a return. It is also advisable to file because you may sell a property in the future and a base price (basis) should be established by filing. Again, you will not owe tax, and you will not have an open year if you file.

Answer 7

If you are able to use a Schedule A (itemized deductions) you can use mortgage interest and real estate taxes. A Schedule A will be attached to a 1040 (filing long).

Answer 8

In schedule A, you enter any taxes already paid (Property Tax) and interest on you home. Your mortgage company will send you that information.

The home has to be your primary residence, though.

Answer 9

You should get a statement from the lender in January which tells you how much interest you paid in 2007. You can deduct that amount from your earned income.