Important real estate tax deductions

I’m sure most of you out there dread April 15th as much as I do.  Long lines at the Post Office, endless paperwork of filing taxes, and some people may even have money they still have to pay to the government.  I wanted to make sure that all of you out there do as much as you can to deduct all of your eligible real estate expenses.  A lot of people aren’t aware that owning real estate can significantly affect the taxes you owe.  So even though the housing market has seen better days, there are some benefits to being a homeowner.  Please remember to always double-check with a Certified Public Accountant prior to filing your taxes.

The first possible deduction is mortgage interest.  Any interest you pay, no matter what the rate, is eligible.  You can also deduct any late payments to the mortgage company and any prepayment penalties you’re charged for paying your mortgage down early (if you are charged).  You should receive a statement from your lender giving you the total mortgage interest paid over the past year. 

If you bought a home this past year and you had to pay points to the lender to obtain the mortgage, that is deductible.  If the word “points” wasn’t used but terms like “loan origination fees,” that also qualifies.  These points are only deductible in the year they were actually paid. 

Many Lake County and Cook County, IL residents will be happy to know that their real estate property tax is deductible.  If you escrow your property taxes with the lender, the amount you paid over the past year will be included in the statement you receive detailing the total insurance.  If you pay separately, you can most likely view cancelled checks, or check with the tax assessor’s office for your county.  This information is also available online in Illinois where you can just enter your PIN number for your home or property address.  While the actual taxes are a deduction, any private services to the utility companies you use like electricity or trash removal is not.

Another deduction to keep in mind is for home improvements.  You’ll want to discuss these with your CPA because a lot of improvements you make to save energy can offer you back a tax credit.  Some of these include new windows and energy efficient appliances.

Some common items that are not deductible include premiums you pay for homeowners insurance, homeowners association fees, utility payments, and the principal you pay on your mortgage.  Again, please verify everything with a CPA.  More information can be found on the TurboTax site here.

Please visit me online for any real estate matters I can assist you with.

Should you try to pay your mortgage off early?

Even in this economy, people are struggling with how to get rid of their accumulating debt.  If they have extra money at the end of the month, they’re wondering if they should try to pay down their mortgage debt.  The biggest bonus to paying down your mortgage faster is to get peace of mind.  No moe huge monthly payments.  They tell you that with interest, by the end of the 30 years (or whatever term you’ve agreed to with your lender) you can end up paying 3x what you paid for your house, just because of the huge monthly interest.  How nice would it be to be done with the biggest debt of them all?

Don’t go grabbing your checkbook yet.  If you’ve been struggling with mortgage payments and are on the verge of foreclosure, don’t go putting any extra money toward your mortgage.  The lender could choose to foreclose on you anyway, and you won’t get that money back.  If you are underwater and you have some extra money laying around, your best bet is to put it away in a savings account or a money market – somewhere you can have it available at the snap of a finger should you need it for an emergency.

If you’re not underwater on your loan, but still have extra money, you will want to start tackling debt.  However, look at the debt that has the highest interest rate.  This is usually credit cards.  You’ll want to contribute extra money each month toward credit card debt first.  Do you have car loans?  Student loans?  Personal loans?  When you think about it, mortgage loans generally have some of the lowest interest rates – usually under 7%. 

If you have no other debt and have an emergency fund of at least 6 months (enough savings to cover the cost of living for 6 months should you or a spouse lose a job), then do you consider paying down your mortgage?  You can … however, there is at least one benefit to having a mortgage on your house.  It can be a great tax deduction.  Mortgage interest you pay every year is tax deductible. 

Make sure you have adequate life insurance policies, especially if you have others depending on you (aged parents, spouse, children).  If you have children that haven’t reached college age yet, start putting money away for school.  Do you have any money saved for retirement?  You won’t want to be working in order to feed yourself when you’re in your retirement years.  Make sure you’re contributing money toward a retirement fund.

If you have all of those categories satisfied, you might consider putting a little extra toward your mortgage each month.  If you’re only doing it for the peace of mind, though, it’s probably not worth it.  It’s best to consult with a certified financial advisor about how best to use your money.  Some other great ideas can be found in this MSN article.

 Have a wonderful holiday and be sure to visit me online.