Mortgage Goals: Homeowner Tax Deductions & Write-Offs

Posted by Laine Smith on 10/16/14 12:00 PM

Topics: Economy Home Buying Home Ownership

Homeownership has long been a part of the American Dream. Why wouldn’t it be? Not only do homeowners reap in lifestyle perks with their owned homes but financial benefits as well – particularly around tax time.


Mortgage Interest

One of your biggest homeowner tax deductions comes from the check you write out each month to the mortgage company. If you are in the beginning years of your mortgage, the majority of your monthly mortgage payment is going towards interest rather than principle. Interest is a good thing, in regards to taxes, because all of that interest is deductible, up to $1 million.

And if you are the owner of a vacation or second home? Your mortgage interest on that loan is also fully deductible. The second home doesn’t even necessarily have to be a house; it could be a boat or an RV. As long as it has cooking, sleeping and bathroom facilities, it qualifies.

Interest tax breaks also expand past your home’s mortgage. if you pulled out extra cash through refinancing or got a home equity loan or line of credit, it’s likely deductible.


Points refer to what you pay to get a better rate on your purchase or refinance. Also known as an origination fee, one point equals one percent. If you agreed to pay one point on a $200,000 loan, that would amount to $2,000.

Taxpayers can deduct the entirety of points in the year they were paid if:

  • The loan was used to purchase or build their primary home
  • Points are an established business practice in the area
  • Points were within the usual range

Homeowners who paid points on their refinance are also eligible for this tax break, but the points must be deducted over the life of the loan. For example, a homeowner who paid $3,000 in points to refinance their 30 year mortgage can deduct $8.33 per monthly payment or a total of $99.96 if 12 payments were made on the loan in one year.

Property Taxes

Property taxes are also deductible, though homeowners may only deduct the amount of property tax actually paid to their city or county for the year, which may not necessarily be the amount paid to escrow. The deductible amount can not include any other city/county fees that may have been on the same bill as property taxes.

If you paid your property tax payments to an escrow account as part of your monthly mortgage payments, you can find your total property taxes paid on your year-end Mortgage Interest Statement or Form 1098.

Private Mortgage Insurance (PMI)

Homeowners who put down less than 20 percent of their home’s purchase price are subject to paying private mortgage insurance (PMI). Homeowners who purchase their home on or after January 1, 2007 are eligible to deduct PMI premiums.

The amount of the deduction is based on income. If your adjusted gross income (AGI) is more than $100,000, the deduction begins to phase out. For married taxpayers filing separately, the phase out begins at more than $50,000 AGI. The deduction is reduced by 10 percent for every $1,00 you make over $100,000, completely phasing out by $109,000 AGI.

Sale of Your Home

If you have owned and occupied your home for at least two of the past five years, you may earn up to $500,000 (for married taxpayers) or $250,000 (for single taxpayers) on the sale of your home and pay no federal income tax.

Costs of selling your home, such as title insurance, broker fees, etc. can also be claimed on your return. If you made certain repairs to the home within 90 days of the sale and for the intent of marketing the home, you can also claim those repairs to reduce capital gains.

At Compass, we are not tax professionals. We always suggest you meet with a Certified Tax Professional before filing your taxes to make sure you are deducting these items properly in accordance with IRS regulations and to ensure you get the highest refund possible.

Tax deductions are a huge benefit of being a homeowner. If you are looking to make your first home purchase, refer to our Mortgage 101 Handbook for access to information about the home buying and mortgage process.

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