Mortgages are very tricky things to get your head around which is why it’s always best to go to someone like the Kensington Calgary Mortgage Brokers for help picking the right one for you. It can save you a lot of money in the long-run and help avoid costly budgeting errors. But there are still lots of questions around the specifics of mortgages so today we will be going over the most common ones we get.
Question: I have a mortgage for land that I intend to build a home on. Can I deduct the interest for the mortgage?
Answer:
You cannot deduct interest on land that you intend to build a home on, but some interest may be deductible when construction begins. You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. The 24-month period can start any time on or after the day construction begins. As a qualified home, the interest paid within certain limitations may qualify as deductible mortgage interest.
Question: Is interest on a home equity line of credit deductible as a second mortgage?
Answer:
You may deduct home equity debt interest as an itemized deduction if all the following conditions apply:
- You pay the interest in the tax year
- The debt is secured with your home
- The home equity debt is limited to the fair market value of the home reduced by home acquisition debt, up to a total of $100,000 ($50,000 if filing as married filing separately).
Question: I took out a home equity loan secured by my main home to pay off personal debts. Is this interest deductible? Where do I enter this amount on my tax return?
Answer:
A loan secured by your personal residence but taken out for reasons other than to buy, build, or substantially improve your home, such as to pay off personal debts, may still qualify as home equity debt, instead, if you’re wanting help in paying personal debts you might be better off looking at something such as credit counseling in order to learn how to handle your finances better and not get yourself into debt in the first place, replacing debt with debt isn’t the best approach, you can also learn how to find the best payday loan provider in your area. Home equity debt is limited to the fair market value of the home reduced by home acquisition debt, up to a total of $100,000 ($50,000 if married filing separately). You may deduct the interest paid during the year on home equity debt as an itemized deduction on Schedule A (Form 1040), Itemized Deductions, generally on line 10. Navigating through things like home equity can be very difficult so if you would like to find out more about Home equity loans then click on the link.
Question: Is the mortgage interest and property tax on a second residence deductible?
Answer:
The mortgage interest on a second home, which you do not rent out during the taxable year, is generally deductible if the interest satisfies the same requirements as interest deductible on a primary residence. The first thing that a person will have to think about when trying to find the right mortgage is the lender that they are going to use. Usually, there will be no shortage of mortgage lenders in an area and finding the right one will take some research. Finding a lender that has been in the business for a number of years and has a good track record is essential. The more a person is able to find out about the company, the better off they will be. If you rent out the residence, you must use it for more than 14 days or more than 10% of the number of days you rent it out, whichever is longer. It is a popular choice for most people to use mortgage calculators so they have a better idea of their costs and can plan ahead. This is also true for commercial properties, whether it be an office space or shopping centre, you can find a commercial mortgage calculator online.
- The combined limitation for mortgage interest on your primary and secondary residence for a married couple filing a joint return, or an unmarried taxpayer is $1,000,000 for acquisition indebtedness and $100,000 for home equity indebtedness.
- Real estate taxes paid on your primary and second residence are generally deductible.
- Deductible real estate taxes include any state, local, or foreign taxes based on the value of the real property levied for the general public welfare.
- Deductible real estate taxes do not include taxes charged for local benefits and improvements that increase the value of the property, such as assessments for sidewalks, water mains, sewer lines, parking lots, and similar improvements.
- An itemized charge for services to specific property or people is not a tax, even if the charge is paid to the taxing authority. You cannot deduct the charge as a real estate tax if it is a unit fee for the delivery of a service (such as a $5 fee charged for every 1,000 gallons of water you use), a periodic charge for a residential service (such as a $20 per month or $240 annual fee charged for trash collection), or a flat fee charged for a single service provided by your local government (such as a $30 charge for mowing your lawn because it had grown higher than permitted under a local ordinance).
Question: If I must deduct points over the life of my mortgage, and I have a 30-year mortgage, does this mean that I divide the points paid by 30 and enter that amount on Schedule A?
Answer:
No, while you have to deduct the points over the life of the loan (amortize), you don’t divide the points by 30, we actually recommend taking your time to fins the best mortgage loan programs in plano tx. Instead, you generally may divide the points by the number of payments scheduled over the term of the loan and deduct points for each year according to the number of payments made in that year.
- If the loan ends prematurely due to payoff or refinance with a different lender for example, then the remaining points are deductible in that year.
- Points not included in Form 1098, (usually not included on a refinance) should be entered on Schedule A (Form 1040), Itemized Deductions, line 12 “Points not reported to you on Form 1098.”
These real estate tax tips were copied from the IRS’s website: https://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/Itemized-Deductions,-Standard-Deduction/Real-Estate-(Taxes,-Mortgage-Interest,-Points,-Other-Property-Expenses)
