This month and next we’ll start receiving our tax documents – those W2 and 1099 forms that let Uncle Sam know how much money we earned in 2016. As a Madison homeowner you’ll receive additional documents as well, most notably IRS Form 1098, which your lender is required to deliver to you by February 15. Because it lists how much interest and PMI you paid for the year it’s an important form, so keep it in a safe place until you’re ready to do your taxes.

The interest you pay on your mortgage is one of the largest tax deductions for homeowners. You should be able to write off all mortgage interest, up to $1.1 million and may even be able to deduct the interest you paid for a second home (speak with your accountant).

By the way, the total amount of interest you paid in 2016 will be noted in box 1 on Form 1098.

I’m not a tax professional, so I urge Madison homeowners to speak with their accountants about what expenses they can and cannot deduct on their taxes. But, here’s a bit of what I know.

That dreadful PMI

Private mortgage insurance is one of those things we have a love/hate relationship with. We don’t care for the added expense every month but without PMI many wouldn’t be able to purchase a home.

The good news is that it’s a deductible expense. Remember that Form 1098 I mentioned earlier? The lender will list the total amount you paid for PMI premiums in box 5.

Property taxes

The IRS allows us to deduct local, state and foreign real estate or property taxes that we pay either at closing or to a “taxing authority.” This includes those paid from an escrow account on your behalf.

For more information on how the IRS treats certain parts of your property tax bill, see Publication 530.

Deduct your energy efficient home improvements

If you installed a geothermal heat pump or solar panel in your Madison home in 2016, you may be eligible for a special tax credit of up to 30 percent of the cost of the improvement. This includes labor costs. IRS Form 5695 breaks it all down for you.

Points

Mortgage lingo is confusing, even for those who’ve owned more than one home, and “points” are something that are typically the most challenging to understand. If you paid origination or discount points when you purchased your home in 2016, the IRS will consider them prepaid interest and allow you to deduct them on your tax return.

Click here to learn more on the IRS website.

Short sale or foreclosure in 2016?

Although Congress keeps threatening to terminate the Mortgage Forgiveness Debt Relief Act, it was again extended, through the end of 2017. So let your accountant know if you went through foreclosure or performed a short sale so that you can take advantage of this Act.

Remember, to deduct homeowner expenses you’ll need to itemize your deductions on Schedule A. When you use this schedule, you won’t be able to take the standard deduction. Your accountant is the best person to counsel you on whether, in your case, this makes sense.

 
 

 

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