Come tax time; you may feel tempted to accept a standard tax deduction rather than explore the potential benefit of itemizing your deductions. Unfortunately, many homeowners do not realize they are legally entitled to take numerous deductions that would save them money on taxes.
Too often, taxpayers take the standard deduction rather than itemizing their tax deductions (even though those with mortgages or home equity loans could have saved considerably by itemizing). If the interest you paid on your mortgage is larger than your standard tax deduction, you will benefit from itemizing.
Even if you don't own a home, itemizing can pay off handsomely. Consider the income taxes you paid to your home state and city and perhaps even the county where you live. Income taxes you pay to these governments are deductible. If you paid points when you got a real estate mortgage in the tax year you purchased your home, you might be able to deduct that amount - even if the seller paid your points.
Loan origination fees that you paid on your mortgage loan for your condo or house may also be considered a legitimate deduction, even if the seller paid them. The mortgage insurance premium is yet another fee associated with your home that may be considered a deduction, which is subject to your adjusted gross income. And of course, the interest paid on a homeowner's mortgage loan is considered a deduction up to $1 million. Equity lines of credit where interest is paid is also a deduction possibility. And for those lucky people who own a second home, the interest paid on that loan may also be a deduction.
Home improvements made out of medical necessity, such as adding wheelchair ramps, are also deductible. Even if you made other home improvements, be sure to keep those receipts for later on when you sell your home.
Interest paid on a home equity loan or line of credit may be tax-deductible up to $100,000; however, the deduction may be limited if the combined amount of your second and first mortgages total more than the property's actual value. For example, Your home is worth $150,000, and your first mortgage is for $125,000, and your home equity loan is for $40,000.
The two mortgages combined equal $165,000 - that's $15,000 more than the value of your home. This means you can only deduct the interest on your home equity loan up to the amount of $25,000 (the difference between your home's value and your first mortgage). Here some tips useful in getting a reverse mortgage tax deduction
Tips To Get A Reverse Mortgage Tax Deduction
The reverse mortgages are for those seniors 62 or over, who have fixed incomes and who own their homes, where they live permanently. The reverse loan makes it possible to tab a part of the home equity either as a lump sum, as periodic payments or as a credit line.
As the reader may know, the reverse mortgages have 0 payments during the running time without a special agreement. If no costs or fees are paid during the running time, a reverse mortgage tax deduction is not possible. In this sense, the reverse loan and the traditional mortgage behave differently.
1. The Reverse Mortgage Tax Deduction Is Possible If Some Fees Or Interests Are Paid.
This is natural, because how a taxpayer could deduct something, which he has not yet paid. Usually, the benefit of a reverse loan is that no costs, capital nor interests are paid during the loan running time. All are paid, when the running time is out, senior moves away or pass away.
Then the capital, costs and the interests are paid using the selling price of the home, or if it does not cover everything, the mortgage insurance, which is obligatory. Now a senior or the heirs can use the tax deduction.
2. What, If A Borrower Will Pass Away During The Running Time?
If this happens, a borrower cannot deduct the paid interests or fees. That is the duty of the relatives or heirs. However, the sum can be quite a big one, especially if there has been a long running time.
As a summary, we can say, that the reverse loan is different compared to the usual mortgage. The great principle is that every single sum must be paid before it can be deducted. This general rule decreases the chances to a minimum. However, a wise senior will take this as a part of the reverse loan agreement.