Tax season is upon us. If you were a homeowner in 2017, there are some things you need to know when you prepare your taxes. For those that owned a home with a mortgage loan in 2017 or purchased a home with a mortgage loan in 2017, you may be eligible for deductions based on your:
- Mortgage interest paid
- Real Estate taxes paid
- Any “points” paid as a mortgage loan fee
How will you know these amounts?
Mortgage lenders are required to send Form 1098 Mortgage Interest Statement to any customer that paid interest on a home loan in 2017. An example of the form is below:
If you purchased your home in 2017, it is possible that you may get two of these. When purchasing a home, some mortgage lenders may originate the loan and after closing sell your loan to a larger mortgage company. In those cases, you would likely have paid some interest to the lender that originated your loan and regular interest to your current lender to which you have been making payments. The originating lender is also required to send Form 1098 Mortgage Interest Statement, but it is also a good idea to pull out some documents from when you closed your loan and purchased your house. Within the package of papers you signed at closing is a Closing Disclosure (CD) or a settlement statement.
The CD contains five pages and details the charges that were incurred when obtaining your home. On this document, you will find the amount of mortgage interest that was pre-paid at the time of closing. Additionally, the CD will show if there were any real estate (property) taxes paid at the time of closing. According to the IRS, “The only costs you can deduct are real estate taxes actually paid to the taxing authority and interest that qualifies as home mortgage interest.”
In certain circumstances, there are some mortgage loan fees known as “points” that may be tax deductible. Any points paid would be found on both the CD and the Form 1098 sent by the lender who originated your home mortgage loan. For tax deductibility of “points,” please consult a tax professional or we’ve included a link to the IRS Publication 530 Tax Information for Homeowners.
If you elect to take the standard deduction on your Form 1040 U.S. Individual Income Tax Return, none of these deductions will be allowed. If you elect to itemize your deductions, it is very important to make sure you have copies of your 1098(s) and your CD if you purchased or refinanced in 2017. IRS regulations require mortgage lenders to send Form 1098 Mortgage Interest Statement to homeowners before February 1st, so keep a sharp eye out for it, and make sure you use the tax deductions available to you that make the most sense for your situation!