Most of us buy a home to live in. There are many tax advantages that come with buying a home. Do not mistake them as tax credits; these are deductions that will result in lowering your adjusted gross income which your tax liability is based on.
- Deduction for mortgage interest: Reported to you and the IRS by your lender on Form 1098. If you purchased your home within the reportable tax year, also add interest you paid as part of closing. Late fees on mortgage payments may be eligible too.
- Deduction for real estate taxes: Property taxes you pay to local agencies are deductible. Information may be included in the Form 1098.
- Deduction for points: New mortgage loans and refinancing may require you to pay points. Information is provided on paperwork with the loan closing. Points paid on refinancing may be deducted over the life of the loan in installments.
- Deduction for Private Mortgage Insurance (PMI): PMI is more common with mortgages after 2007. All or part of PMI is tax deductible.
- Profits at the time of sale of your home may not be taxable: If you lived in your home two out of last five years, chances are you do not have to pay taxes on any profit when you sell your home.