Your Mortgage: Your Biggest Debt, Your Biggest Tax Deduction

Many people out there are considering buying a home, but are wary to incur what is most likely their largest debt ever. But you should know, that this debt can work to your advantage when the tax man comes knocking…….

It’s almost April 15th, and my husband just bounded down the stairs to announce that he finally finished up what needed to be done to submit our taxes for the year. Some years we make it by the deadline, some years we don’t. We both work on commission, and depending on the how the year went, we’re less excited about this time of year than others. When we actually don’t file an extension, we’re kind of proud of ourselves. It got me to thinking about paying Uncle Sam, and what one advantage we have working in our favor. We are homeowners.

So what’s the big deal about being a homeowner when tax time rolls around? Well, what many people who have never owned a home may not know is that your mortgage is not only your largest debt, but also it can be your largest write off as well. (And honestly, there are probably plenty of homeowners out there whose accountants prepare their taxes for them, and they never really noticed how much this write off counts!).

This time of year, many folks are digging through file folders, nooks and crannies to find charity receipts, business receipts and any other write off they can remember. How does the old saying go? You can’t escape death or taxes. And tax time can make you feel like your facing death anyway. But what some people who’ve never owned a home don’t realize is that you can deduct all the interest from the past year you’ve paid monthly on your mortgage payment from your annual gross income. Yep. You read that correctly. And may I remind you that during the honeymoon phase of your mortgage repayment, the majority of what you pay (unless it’s an interest only loan) goes toward interest, not principal reduction. So think about it: potentially, this tax deduction could pop you into a lower tax bracket if the numbers work out.

In January of every year, your mortgage servicer will send you a statement that reflects the amount of interest you paid, and you can reflect this amount on your 1040 as a deduction (or you can tally up the amount from your checkbook). What’s more, unlike the majority of deductions, you get to count ALL of the interest portion of your payments you made last year. So, buying a home versus renting can make even more sense for you. Not only are you living in a home that will increase in value over time, you also have all that interest to write off in April. Sounds like a win-win situation to me.

Understandably, the tax break is only a side benefit to owning a home. The biggest value is having a place to call your own that you and your family love. But, writing a smaller check come April sure would feel good, too. Don’t you agree? So, if you’ve been considering buying a home, perhaps this bit of knowledge will be the final nudge that makes you move forward. And next year, you can look forward to a new advantage at tax time.
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Let My Experience Work For You!Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at www.kristinmortgage.com Home Loans Plain Talk.