Mortgages and Refinancing - Janice Bourne, CPA, PC

The Tax Benefits of Owning a Home

Even though your monthly housing expenses probably has increased with your home purchase, you will see a decrease in Federal and State income taxes you pay. That's because you can deduct all the interest on your mortgage totaling as much as $1 million on your principal residence and second home.

Your mortgage must have been made to buy, build, or improve your home. In addition, you can deduct the interest on home-equity loans of up to $100,000. Other expenses of home maintenance which are not tax deductible become deductible under two circumstances: (1) if you rent out part of it, or (2) if you use part of your house to actively run your business.

Points paid to get a loan ordinarily can be deducted in the tax year the closing occurred. Points paid when refinancing are currently deductible only to the extent the loan proceeds are used for home improvements. Otherwise, you must deduct the points pro rata over the life of the loan but, if you sell the home before the loan is fully amortized, you can deduct the remaining points on your tax return in the year of the sale. A point is equal to one percent of the amount of the loan.

When looking to refinance and sell your home within the near future, you might want to consider an adjustable mortgage. There are many types of adjustable rates mortgages. Some adjustable mortgages are fixed for as long as 10 years before they adjust annually. Adjustable rate mortgages will give you the benefit of a lower interest rate which will mean lower housing expenses and greater profits.

Refinancing tax benefits:

Mortgage rates today may be lower than they were when you took out your current home mortgage. If so, perhaps you should consider refinancing your mortgage. Here are some guidelines for when refinancing pays, and when it probably doesn't:

When considering if refinancing will pay, you need to examine three factors;

How much you'll save in monthly payments,
The cost of refinancing your current mortgage (points, appraisal fees, title search, application fees, etc. and,
How long you plan to remain in your home.

For each loan you consider, divide the monthly savings from lower payments into the total cost of refinancing. The result tells you how many months it will take to break even. If you'll be selling the home within a year or two after you break even, look for the lowest refinancing costs. If you plan to own the home for many years, finding the lowest possible interest rate will usually give you the greatest overall savings.

Here are some easy-to-use calculators

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Janice Bourne, CPA Certified Public Accountant	John J. Bourne Tax & Accounting Consultant

Serving New Bern and surrounding areas 37 Shoreline Drive New Bern, NC 28562 (252) 633-2535 FAX (252) 637-3563 PO Box 14507 New Bern, NC 28561