It’s April 15th! Tax Day!

Most people dread this day with a passion.

The collection of receipts and other financial documents needed to file your tax return can be a daunting task. Ugggh!! Paperwork!

But it’s not all that bad. In some cases, it can be a good thing! (I know you know what I’m getting at, so I’ll just get to the point.)

Real Estate And Taxes 101

Homeowners paying a mortgage undoubtedly know the benefits of homeownership when tax time comes around. For those of you considering homeownership, this post is for you.

When you buy a home, your buying into one of the largest single investments of your life. Although the real estate market these days is down, the national average cost of a median-priced home is still in the $200,000 range. It might not seem like a lot for a house, but for most people, $200,000 is a lot of money! Because home prices are quite large, most buyers opt to get a home loan or a mortgage to buy their house. This type of loan consists of monthly installment payments over a given period of time. Soon after the buyer closes on the property, the monthly mortgage payments begin.

So let’s look at a simple break-down of your monthly mortgage payment:

• A portion of your payment goes towards paying down the principal balance of the loan.
• A portion goes towards paying for the interest assessed on the loan.
• A portion may go towards an escrow account, which some lenders require in order to pay for things like local real estate taxes and home insurance.

Uncle Sam knows that buying a house is a big expense, so as a perk for buying a house (and stimulating the economy), Uncle Sam let’s homeowners deduct some expenses for buying and owning a home from your taxable income amount each year you own the property. Now buy “some expenses”, I don’t mean the cans of paint you purchased to update the living room or the garden gnome you bought to greet guests walking up to your front door. I’m talking about expenses like “points” you paid to buy down the interest rate on your loan and the interest amount you paid for the year.

Your home loan lender is supposed to send you a tax form (IRS form 1098) indicating the total amount of interest you paid for the year, and any points you may have paid on the loan. The amount of interest you paid can be included in your itemized deductions on your federal tax return! Yay!

Investors, not only can you deduct interest and points on your investment properties, you can deduct expenses associated with renting your house: marketing, repairs, etc.

So you see, homeownership can be the silver lining on a cloudy day when it comes to April 15th. Now if only you could find the time to file your tax returns early each year!

(This information is considered general information and you should consult a tax professional for details regarding tax deductions or other real estate tax concerns.)