The Home Mortgage Interest Deduction

One of the financial advantages of owning a home is that you receive a number of tax deductions that you can use to adjust your gross income and reduce the amount of income tax you pay to the IRS.

The main tax deduction is the Home Mortgage Interest Tax Deduction.

Home Mortgage Interest Deduction

Under 26 U.S.C 163(h) of the IRS Code you can deduct home mortgage interest if you itemize your deductions, the loan is used to secure a primary or second home and up to a limit of $1,000,000 of debt used to acquire, construct or improve the home ($500,000 for single filers) or $100,000 of home equity debt.

If you purchase your home using a mortgage loan your lender will require repayment of the loan over a period of time, usually 25 or 30 years.

During the repayment period your payments will be split into repaying the principal and the interest on the loan. This is known as an amortized loan as it creates a repayment schedule for both the principal and the interest designed to pay off the loan over a defined period of time.

As a general rule the interest portion of your loan repayments is tax deductible.

To calculate how much interest you paid over a year take a look at your mortgage loan account statement. Your lender is required to itemize how your payments are used to pay principal, interest, fees and escrow. Even better, at the end of each financial year your lender is required to send you a document called a 1098 that tells you exactly how much you paid in interest and costs for that year.

As always there are a number of limitations, exclusions and exceptions: Continue reading “The Home Mortgage Interest Deduction”

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The Impact of the 3.8% Affordable Care Act Tax on the Sale of Your Home

Is there a 3.8% Affordable Care Act Tax on the sale of Real Estate?

The Affordable Care Act (ACA), often referred to as Obamacare, was signed into law by President Barack Obama on March 23, 2010 and went into effect in 2013.

The law is a Federal law that pertains to health care and health insurance, but is relevant to homeowners because it instituted a 3.8% tax on the net investment income of certain high earning taxpayers, including upon the net investment income on the sale of a home.

I’ll break down exactly who will pay the tax (and how much), but for now it’s easier to simply state that the tax is intended to raise general revenue to be used, among other things, to administer the Affordable Care Act.

Let’s start by saying right out of the gate that most people will not pay the 3.8% ACA tax upon the sale of their home. This is because there are a number of exclusions that exempt most homeowners.

The people most likely to pay the tax are Continue reading “The Impact of the 3.8% Affordable Care Act Tax on the Sale of Your Home”

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