The answer is Tax Deductible!
What are the Tax Deductible Closing Costs on Your Frisco TX Home transaction?
*Note: Please consult your tax advisor for specific information pertaining to your taxes. The article below may or may not apply to your tax situation.
So, you closed on your home and it is time to incorporate all the tax deductible items that everyone was telling you about when they advised you about buying a home in Frisco TX.
The following items may be tax-deductible (again, check with your tax advisor. This information is prepared in January 2013. Tax laws may change depending on when you read this article):
Loan origination fee (usually described as “points”)
Loan origination fee is a fee borrowers pay to obtain the mortgage. It is usually described as a percentage of “points”. It is not to be confused as “discount points”. The loan origination must be described in percentage for it to be tax-deductible. Also, the points paid are not fully deductible in the year you took out the mortgage. It is prorated over the life of the mortgage.
Pre-paid mortgage interests
Pre-paid mortgage interest is tax-deductible. The number is found in the HUD-1 settlement statement. For example: You close on June 28. You paid 2 days of pre-paid interests from 6/28 – 6/30.
Property taxes, similar to pre-paid mortgage interests are tax-deductible.
Pre-payment penalty fees
If you have a pre-payment penalty charges should you pay off your mortgage early, the early pre-payment penalty fee is tax-deductible.
Mortgage Insurance Premiums*
As of 2007, the mortgage insurance premium became tax-deductible through 2013. You may find it in Form 1098 when the mortgage company reports it in Box 4. However, it is not included with your mortgage interest, you may add it manually when you file your taxes in the itemized section of Schedule A.
* Mortgage insurance premiums are fully tax-deductible for income earners less than $100,000 AGI. AGI between $100,000 to $109,000 receives a partial deduction and over $109,000, taxpayers cannot deduct the mortgage insurance premiums. For single or married filling separately, the numbers are $50,000 and $54,500 respectively.
Items Not Allowed for Tax Deduction on the HUD-1 Financial statement include:
- Home/ Hazard insurance
- Wages for domestic help
- Utility costs (gas, electric, water, sewer, septic, etc.)
For more information, check out IRS Publication 530: Tax Information for Homeowners
You must file for Form 1040 Schedule A in order to itemize your deduction. Once you opt for Schedule A Itemized Deductions, you cannot take Standard Deduction.