Your Mortgage Payment Comes with These Goodies!

Owning your home is part of American dream. Your home may be a house or just a condominium but that doesn't matter. Almost everybody purchases it with a mortgage. This mortgage payment brings a number of tax benefits to make you happier.

If you take a mortgage, you need to be careful while preparing your tax return. The first important step is - go for itemized deductions. If you take the choice of standard deduction, you will not be able to deduct interest on your mortgage and many other expenses on your tax return. Standard deduction allows you to deduct a specific percentage from your gloss income. However you will miss out on all deduction relating to your home. If you are a first time home-owner, it is strongly recommended that you should go for itemized deductions.

Once you make that choice, you are eligible for three deductions -taxes on your property, the cost of points purchased while taking a mortgage and interest on mortgage.

As you take a mortgage, it is obvious that you will be paying taxes on that real estate. These taxes usually charged by the local or state government. Remember, you have to use schedule A to itemize. These taxes can be straightaway deducted from your gross income so they would lower your tax liability directly. There are no limitations on the amount of taxes you can claim as deduction if it is your own home. However, if you are planning to purchase a number of houses, the only condition is - you have to claim all these taxes in the year in which they are paid.

A lot of people are required to purchase 'points' while securing a loan for their home. These points are useful for reducing the rate of interest on loan. They will also increase the amount paid by the lender. They are simply the fees while processing your loan.

If you are planning to purchase these points for your primary residence, you can claim a deduction for their cost in the year of purchase itself. However if you are going to purchase a number of houses, the expenditure on points is deductible over the period of the loan. If the points are classified as a kind of interest, then the total money spent on them is deductible from your gross income.

The main deduction however is the interest which you pay while making payment of your mortgage. The amount which you paid towards your principal is obviously not deductible on your tax return but the amount of interest you pay is fully deductible. The interest is usually high during the initial years of your mortgage and it diminishes over the number of years.
This amount of interest will reduce your gross income and it may bring down your tax bracket. Naturally you will pay lower taxes every year.
In addition to fulfilling of your dream of owning your own home, these deductions will fulfill your another dream - paying less taxes!

Are you planning to buy your first home? There are many deductions which can save on your taxes considerably. Follow the instructions carefully and lower your taxes! Chintamani Abhyankar explains more on these tips.
Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.