Benefiting from the Mortgage Tax Credit
For Americans, owning a home means you also save money on taxes. The mortgage interest deduction and the deduction for property taxes are one of the most important benefits of home ownership to Americans. They allow home owners to count the interest and taxes paid against their income. The majority of Americans benefit by using the deduction. Congress is now talking about doing away with the mortgage interest deduction; however, we must continue to fight to preserve this important tax deduction benefit that has been the very essence of homeownership in America.
Background on Mortgage Interest Deduction
Under the IRS rules, taxpayers can deduct the entire amount of interest on a maximum of $1 million mortgage debt secured by a first and second home, plus any interest paid on a maximum $100,000 in home equity loans. If you are married filing separately or a single taxpayer, the maximums are half. The mortgage interest deduction reduces your taxable income and your tax liability when the total you pay exceeds your standard deductions ($5,800 for unmarried taxpayers or married taxpayers filing separately, $11,600 for married taxpayers filing jointly, and $8,500 for taxpayers filing as head of household). Also deductible are any mortgage points, also referred to as original fees, associated with your home purchase. Points on a refinanced mortgage are deductible over the life of the loan, but you get to write off the balance of the points from your existing loan. Your property taxes are also deductible from your ordinary come. This is the actual amount you paid in real estate taxes during the tax year not amounts deposited into an escrow tax account, which is held to pay your property taxes.
When you sell your home, you also get a tax benefit in capital gains taxes. The gain is your selling price less your closing costs and your tax basis on your home. The tax basis is the original purchase price plus improvements minus depreciation. Under the 1997 Taxpayer Relief Act, sellers get to keep tax up to $250,000 in capital gains taxes if you are single and married couples, who file joint tax returns, get to keep up to $500,000 in gains. Capital gains are not paid on ordinary income though.
Possible Elimination of Mortgage Interest Deduction
The bad news for homeowners is that congress has been talking about doing away with the mortgage interest deduction. So with so many benefits at stake, you can understand why it is so important that the mortgage tax deduction credit be available to Americans. The NAR has been fighting to keep the deduction. Eliminating the deduction would have a negative impact on the economy and the housing industry. It is important to contact your legislative representatives and let them know your position on the mortgage interest deduction.