If you itemize, you can claim deductions for real estate taxes and mortgage interest, including points you paid on the home purchase. You may also be able to take a medical deduction for special equipment or improvement installed in your home if the main purpose is medical care for you, your spouse or your dependent. Call us for a more complete review of tax breaks for homeowners.
Mortgage interest deductions:
You can deduct the interest that you pay on your mortgage loan if the loan meets IRS mortgage requirements.
When you repay a mortgage loan, the payments are almost completely composed of interest rather than principal in the first few years. Even later on, the interest portion can still be a significant portion of your payments. However, you can deduct the interest that you pay if the loan meets IRS mortgage requirements.
Mortgage loan requirements
In order for your mortgage payments to be eligible for the interest deduction, the loan must be secured by your home, and the proceeds of the loan must have been used to buy, build or improve your main residence, plus one other home you own that you also use for personal purposes.
If you rent out your second home to tenants during the year, then it’s not being used for personal purposes and doesn’t qualify for the mortgage interest deduction. However, rental homes will qualify if you also use it as a residence for the greater of 15 days or more per year or more than 10 percent of the days you rent it to tenants.
Mortgage balance limitations
The IRS places several limits on the amount of interest that you can deduct each year. For tax years before 2018, the interest paid on up to $1 million of acquisition indebtedness is deductible if you itemize deductions. The interest on an additional $100,000 of debt can be deductible if certain requirements are met.
For tax years after 2017, deductible interest for new loans is limited to principal amounts of $750,000. Loans originated prior to 12/16/2017, or under a binding contract that closes prior to 4/1/2018, remain under the old rules for tax years prior to 2018.
If you are married and file a separate return from your spouse, then the limitation is cut in half. These limits are cumulative for all of your mortgage debt on both homes. For example, if you are single and have a mortgage on your main home for $800,000, plus a mortgage on your summer home for $400,000, you would only be able to deduct the interest on the first $1 million, even though both loans are each under the $1,000,000 limit for tax years prior to 2018.
Including mortgage points
Mortgage discount points, also known as prepaid interest, are generally the fees you pay at closing to obtain a lower interest rate on your mortgage. These costs are usually deductible in the year that you purchase the home; but if not, you can deduct them ratably over the repayment period. For example, if you pay $3,000 in points to obtain a lower interest rate on your mortgage, you can increase your mortgage interest deduction by $3,000 in the tax year you close on the home.
Claiming the mortgage interest deduction
You cannot claim a mortgage interest deduction unless you itemize your deductions. This requires you to use Form 1040 to file your taxes, and Schedule A to report your itemized expenses. The interest payments and points you pay are combined with all other deductions you claim on Schedule A; the total of which reduces your income that is subject to tax on the second page of your tax return.
https://turbotax.intuit.com/tax-tips/home-ownership/about-tax-deductions-for-a-mortgage/L2NEBzLjY
Real Estate Tax deductions:
The Tax Cuts and Jobs Act (TCJA) trimmed two important tax breaks for homeowners and left another big one completely untouched. That sounds simple, but it’s a complicated story when you consider real-world situations. So, I’ll present the story in two bite-sized installments. Here’s Part 1.
New limit on deductions for state and local taxes, including real property taxes
Under prior law (before the TCJA), you could claim an itemized deduction for an unlimited amount of personal (non-business) state and local income and property taxes on Schedule A of Form 1040. So, if you had a big property tax bill, you could deduct the whole thing if you itemized. Individuals with big personal state and local income tax bills could fully deduct those too on Schedule A, if they itemized. Finally, you had the option of deducting personal state and local general sales taxes on Schedule A instead of state and local income taxes (beneficial if you owe little or nothing for state and local income taxes).
For 2018-2025, the TCJA changes the deal by limiting itemized deductions for personal state and local property taxes and personal state and local income taxes (or sales taxes if you choose that option) to a combined total of only $10,000 ($5,000 if you use married filing separate status). Personal foreign real property taxes can no longer be deducted at all, so no more deductions for property taxes on that place in Cabo.
These TCJA changes unfavorably affect individuals who pay high property taxes because they live in a high-property-tax jurisdiction, own an expensive home (resulting in a hefty property tax bill), or own both a primary residence and one or more vacation homes (resulting in a bigger property tax bill due to owning several properties). Individuals in these categories can now deduct a maximum $10,000 of personal state and local property taxes — even if they deduct nothing for personal state and local income taxes or general sales taxes.
For further information/ part 2 on this change visit : https://www.marketwatch.com/story/how-the-new-tax-law-affects-homeowners-it-could-be-more-than-you-think-2018-02-05