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  • Writer's picturePatrick Murtha

Mortgage Interest and Property Tax Deductions on your Primary Residence

Tax time isn’t something most taxpayers look forward to, but when you can take tax deductions, it can be much easier to handle. For example, if you’re a homeowner, you may be able to deduct your mortgage interest and property taxes up to specific points.

The Tax Cuts and Jobs Act changed how much homeowners can deduct, but there are still plenty of deductions you can take to lower your tax liability.

Can you Deduct Mortgage Interest and Property Taxes?

Certain homeowners may deduct the mortgage interest and property taxes paid on their primary residence. This only applies if you itemize your deductions, though.

The standard deduction increased since the Tax Cuts and Jobs Act. So now, many people don’t benefit from itemizing their deductions. However, if your deductions exceed the limit of $12,950 for single filers and $25,900 for married couples filing jointly in 2022, you may benefit from deducting your mortgage interest and property taxes paid.

Whats the Limitation on Property Taxes?

As of 2018, homeowners can deduct up to $10,000 in State and local taxes paid per year. Any taxes you paid starting from when you bought the home are eligible.

For example, if you bought a home on June 1, 2022, and pay property taxes either at the closing or later in the year, you can deduct any amount paid up to $10,000. But there’s an exception.

If you help the seller bring their property taxes current, you cannot deduct them as property taxes. Instead, it becomes a part of the property’s tax basis, aka the cost of acquiring the property, which will affect your capital gains tax exclusion when you sell the property.

What Interest can you Deduct?

The IRS also offers a mortgage interest deduction as an incentive to own a home. This deduction allows you to reduce your tax liability by the mortgage interest paid on a loan to buy, improve, or build a house.

You can deduct mortgage interest paid on the first $750,000 of mortgage indebtedness. However, you can deduct mortgage interest on the first $1 million of mortgage indebtedness if your home was purchased prior to 2018.

The mortgage interest deduction applies to a first mortgage and second liens, including home equity loans, home equity lines of credit, or a second mortgage. However, any subsequent financing must be for the home, aka home improvements or purchasing the home. So, for example, you can’t deduct interest on a HELOC used to consolidate credit card debt or to buy a car, but you can deduct interest on a loan borrowed to make home improvements.

Final Thoughts

Using the property tax and mortgage interest deductions can lower your tax liabilities because you own a home. However, the laws have changed, and some stipulations determine whether you can take the deductions.

If you aren’t sure if you qualify for the property tax or mortgage interest deduction, contact the professionals at Henson and Murtha CPAs and let us help. We’ll ensure you take advantage of every tax deduction you are eligible for regarding owning a home.

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