Federal Income Tax and Mortgage Interest

If you own a home, do not forget that the interest you pay on your mortgage can be tax deductible. Your current lender will send you a printout of the amount of interest you paid during the year. This is one of the biggest advantages of home ownership.

If you do not receive your statement from your lender by January 31st or so for the previous year you should contact your lender to have them reissue you another copy. This can help out tremendously when doing your IRS Federal 1040 forms and itemizing your deductions. Many consumers do not pay off their mortgage for the fact that they like having the write-off of mortgage interest.

If you purchased your home in the past year, you may want to consult your tax advisor about possible tax savings for "points" or origination fees you may have paid at closing. Have a copy of your HUD settlement statement for their review. If you are unable to locate it, ask your mortgage professional for a copy of it. They should be able to provide one.

If you have any questions about your taxes and what can be deducted and what can not, make sure you consult a tax professional. They will make sure that you are keeping yourself legal and getting the most back.

In most cases, you will be able to deduct all of your home mortgage interest. Whether you can deduct all of it depends on the date you took out the mortgage, the amount of the mortgage, and your use of its proceeds.

You can also deduct any amount you pay for points to reduce the interest rate of your mortgage or other loan linked to your home. In most cases, the points on a mortgage to buy or build your principal home can be deducted fully in the first year. However, if you refinance, take a home equity loan, or a loan secured by a second home, the points must be deducted over the life of the new loan. The exception is if you use part of a refinanced mortgage to improve your house; that portion of the points can be deducted in the same year.

Some lenders have automated phone systems where you can check how much interest you've paid year-to-date. This can be helpful if you're preparing your tax returns and need to plug in the number, but haven't received your mortgage interest statement yet.

The federal government recently allowed PMI to be tax deductible. This may be a fair sized deduction for home owners who purchased homes with no money down and have high PMI payments. You will want to check with your tax professional to be positive your situation allows the PMI deduction.

In many cases, your pre-payment penalty may also be considered mortgage interest and may therefore be tax deductible from your federal income tax return.

» DISCLAIMER: The information contained in this article on 'Federal Income Tax and Mortgage Interest' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.