Tax Breaks. for Homeowners. Page 1. Member FDIC

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1 Tax Breaks for Homeowners Est Page 1

2 Tax Breaks for Homeowners Table of Contents Section I: Page 3 Mortgage-related deductions Section II: Page 6 Other home-related deductions and credits Section III: Page 10 Save the (tax) dates Est Page 2

3 Section I Mortgage-related deductions Section I Est Page 3

4 Mortgage-related deductions Taxing authorities in the U.S. encourage homeownership. Consequently, as a homeowner, you may benefit from a number of significant tax breaks. If you have a mortgage, as most people do, your interest deductions can help defray the ongoing costs of ownership. Here are the mortgage-related deductions you may be eligible to claim: Mortgage interest The interest paid on a home loan is typically the largest potential deduction for middle-class Americans. For example, a 30-year mortgage on a $300,000 home at current rates can run more than $12,000 in interest payments your first year 1. To claim this, you ll need to itemize your deductions. Most banks, including Flagstar Bank, will have sent a Form 1098 to their customers by the end of January. It lists the mortgage interest you will have paid during the previous year. Be aware that for 2018, this interest deduction applies only to loan amounts up to $750,000. USA Today Late charges You may be able to deduct a late payment charge as home mortgage interest as long as the charge was not in exchange for a specific service received in connection with your loan. 1 These fees can only be deducted at one time when purchasing a home. If refinancing, the fees are amortized over the life of the loan. Section I Est Page 4

5 Mortgage-related deductions, cont d. Prepayment penalties If you pay off your home mortgage early, some lenders may require you to pay a prepayment penalty. You may be able to deduct this penalty as long as the charge was not for a specific service received in connection with the loan. Flagstar Bank does not assess prepayment penalties on mortgages. Points and fees When you buy a house, you often have to pay loan origination fees to the lender. These fees can usually be deducted as prepaid interest in the year in which you pay them 1. Fees charged for specific services (such as preparation costs for a mortgage note, appraisal fees or notary fees) are not considered interest and therefore cannot be deducted. For more details on deducting points, see IRS Topic 504: Home Mortgage Points. Intuit, Turbo Tax 1 These fees can only be deducted at one time when purchasing a home. If refinancing, the fees are amortized over the life of the loan. Section I Est Page 5

6 Section II Other home-related deductions and credits Section II Est Page 6

7 Other home-related deductions and credits You ll find that many homeowner deductions and credits are unrelated to your mortgage. These can also be significant and reduce your overall cost of homeownership. Here are a few of the more common ones: Property taxes Municipalities, school districts and other local authorities all levy taxes on the assessed value of your property. Flagstar Bank, like most mortgage lenders, may escrow these amounts in your monthly mortgage payment. The actual taxes paid will be listed on your annual 1098 form. You can deduct these taxes as long as they are not in exchange for a specific service, like trash collection. Note that the new tax laws affecting your 2018 return will limit these deductions to $10,000. Do not deduct payments into your escrow account as property taxes. These monthly deposits are simply money put aside to cover periodic tax payments. Deduct only the actual property tax payments made from the account by your lender during the year. Intuit, Turbo Tax Energy credits Expenditures that improve the energy efficiency of your home may qualify for tax credits. A tax credit is even better than a deduction, because they are dollar-for-dollar savings, instead of simply saving you whatever tax you paid based on your income bracket. These credits can be claimed for improvements like a new energyefficient furnace, upgraded insulation, new thermal windows, doors or a replacement roof. USA Today Section II Est Page 7

8 Other home-related deductions and credits, cont d. Home improvements Here s something that may save tax dollars when you sell your home. Keep receipts and records for all improvements you make, such as landscaping, storm windows and fencing. Although you can t deduct these expenses now, the record keeping may pay off later. Here s how: when you sell your home the cost of the improvements is added to the purchase price of your home to determine its cost basis. This will reduce any potential taxable gain that you may have from the eventual sale of your home. Intuit, Turbo Tax Casualty losses If you suffered property damage and weren t reimbursed by an insurance company for repairs, you may be eligible for a big deduction. Whether it s a flooding or a fallen tree or even vandalism, sometimes damage to your home can cost you thousands of dollars out-of-pocket. Your casualty loss deduction must exceed 10% of your adjusted gross income, so it may not be worth your time to write off small-time repairs. But if you incur significant expenses repairing your home after an unfortunate event, document everything and tap into this tax break to ease some of the pain. Note that new tax laws affecting your 2018 return will only allow deductions for casualty losses in federally-declared disaster areas. USA Today Section II Est Page 8

9 Home expenses you may not be able to deduct Unfortunately, there are a number of significant costs of home ownership that are rarely deductible. These include the following: Homeowner s insurance premiums Fire insurance premiums FHA mortgage-insurance premiums Principal payments made on your mortgage Title or mortgage insurance Utilities, such as gas, electricity, water or trash collection Most settlement costs on your closing or settlement statement Homeowner s association (HOA) dues and fees Intuit, TurboTax Section II Est Page 9

10 Section III Save the (tax) dates Section III Est Page 10

11 Save the (tax) dates Here are some important tax dates and deadlines to keep in mind for 2018: W-2s and 1099-Misc start to arrive: January 31, 2018 You should start seeing your W-2s and 1099s arrive in the mail DIVs could arrive as late as February 28, Tax year 2017 tax deadline: April 17, 2018 It s the big day! Individual tax returns are due for Tax Year 2017, so be sure to e-file or postmark your individual tax returns by midnight local time. The regular tax return filing deadline is April 15. However, due to April 15 being on a Sunday and the Washington D.C. Emancipation Day holiday being observed on April 16, Tax Day is on the following Tuesday. Last day to make a 2017 IRA contribution: April 17, 2018 It s not just Tax Day! If you haven t maxed out your IRA contribution for 2017, you can make contributions to an IRA by April 17, 2018, to lower your 2017 taxable income! Deadline for filing extension: October 15, 2018 If you have filed a request for an extension (by April 17, 2018), your completed return must be filed by October 15, 2018 to avoid penalties. Section III Est Page 11

12 Let me know if I can help Flagstar Bank encourages customers to talk with their accountant or tax attorney as to the deductibility of expenses. Let me know if I can help you find reputable assistance. This article is intended for informational purposes only. Flagstar Bank always advises its customers to consult with their accountant for confirmation on possible deductions. Flagstar Bank is neither a law firm nor a certified public accounting firm and does not provide legal or tax advice. Consult your accountant or tax advisor for advice specific to your situation. Section III Est Page 12