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Which parts of closing costs are tax deductible?
There are several financial advantages that come with buying and owning a home, including some significant tax benefits! You should of course consult with your accountant for details, but here are some of the basics:
When you buy a home, you'll have to pay closing or settlement costs. Many of these expenses are tax-deductible. For instance, you can typically deduct any settlement agent fees, survey, title search, and transfer tax.
If you paid points at closing, also called discount points or origination fees, these points are considered pre-payment of the interest on your mortgage, therefore are tax-deductible. Points are equal to 1% of the loan amount and a home loan will typically include one to three points, so this can add up to a sizeable deduction. Depending upon the purpose of the loan, you may be able to deduct all the points in the year you paid them or you may have to deduct them over the term of the loan.
Mortgage Interest and Property Tax
You can also deduct the interest you pay on your mortgage each year for a first or second home. This can be a huge savings, since most of your payments for the first several years go primarily toward the interest! You may also be able to deduct your federal and state property taxes to further reduce your tax bill.
Home Equity Loans or Lines of Credit
If you have a home equity loan or line of credit for $100,000 or less (or $50,000 or less if you are married and filing separate tax returns), you may be able to deduct the interest on your taxes. A home equity loan or line of credit lets you tap into the equity of your home and can be a great way to cover home repairs or pay off a high interest rate credit card.
Home Office Deduction
If you use part of your home as an office for your business, you may be able to deduct some of the maintenance costs, like utilities, on your taxes. Keep in mind though that if any of your home has been deducted as Home Office, the sale of your home may result in reporting the capital gains of the part of your home you deducted.
NOT TAX DEDUCTIBLE
* Private mortgage insurance (PMI) - in some cases
* Mortgage insurance premiums
* HOA payments
Renting offers a lifestyle that's nearly maintenance-free. That may appeal to you, but consider that renting offers you no equity, no tax benefit, and most likely no protection against regular rent increases. If your rent has averaged $700 a month for the last 10 years, you've spent $84,000 with nothing to show for it. Isn't it time you invested in yourself instead of your landlord?