- Mortgage Interest
- Mortgage Insurance and Real Estate Taxes
- Debt Forgiveness
For tax year 2014, the standard deduction is $6,200 for single filers, $12,400 for those married and filing jointly and $9,100 for head of household filers.
As such, unless you can claim more than those amounts, there's no reason to itemize.
However, if you own a house, you are in a position to take advantage of the many deductions that come with homeownership. You just need to make sure all the necessary forms are filed correctly with the IRB and/or the IRS depending on your jurisdiction.
Utilizing mortgage interest is the most beneficial and one of the most common deductions for homeowners. However, that deduction is limited to $1 million in mortgage debt. One important exception to note to this deduction is that if a home equity loan is taken out, the funds are to be used solely for home improvements in order to qualify for a tax interest deduction.
Mortgage Insurance and Real Estate Taxes
Mortgage insurance is also deductible. Mortgage insurance should not be confused with property insurance which protects the home from casualties or losses. Mortgage insurance is sometimes required by the lender in the event the borrower is unable to make a downpayment equal to at least 20% of the purchase price.
Also deductible are property (real estate) taxes which can also be itemized as a deduction on the tax return. Pay particular attention to when the tax is actually paid versus what year it was for or due. Despite what year is being billed or when you actually receive the bill, you benefit in the year that the bill is actually paid. So review your year-end mortgage statement if your lender escrows the tax to see when it actually was paid to the government. Monthly tax escrow payments required by the lender are not deductible; the payment only becomes deductible when it is actually paid to the taxing authority.
Debt Forgiveness (1099-C), although not too common, can have a significant impact on your tax liability and shouldn’t be ignored. Debt Forgiveness is treated as additional income and follows traditional consequences similar to “underreporting” if not included. Failure to report the debt forgiveness could result in a tax bill with added penalties and interest. For example, if you are unable to keep up with your mortgage payments and your lender agrees to reduce your loan balance, you may be a candidate for the Debt Forgiveness clause.