Tax write-offs are the government’s way of rewarding taxpayers for doing something the government likes. When people borrow money to buy a house, there are many write-offs for the borrower to be aware of.
Here are few that are often forgotten:
Points: In order to be tax deductible, origination fees charged as points must be paid for the use of money. If the fee applies to the use of money (for example to lower the interest rate), then it can be written off.
Pre-Payment Penalties: Often, buyers need to pull out of a loan before they have completed paying for it, and they are charged pre-payment penalties. Remember that these pre-payment penalties are always tax deductible.
Pro-Rated Real Estate Taxes: Buyers pay a pro-rated portion of the taxes for the year at closing. They can deduct their share.
Pro-Rated Mortgage Interest: Buyers pay a certain amount of mortgage interest for the month they close, and it depends on when in the month the sale closes. The final closing statement shows how much they are due, and they can write that off.
Home Construction Loan Interest: As long as the construction period doesn’t last more than two years before they make the new place their principal residence, they can write off the interest for the construction loan.
If you as a buyer pay attention to these write-offs, you can get some serious savings on your taxes.