By Maurie Backman for FoxBusiness.com:
Buying a home is a big undertaking, but your new home purchase might help you enjoy a world of tax breaks. If you're a new homeowner, you should know that there are several tax deductions available, some of which can put a fair amount of money back in your pocket. Here are a few tax benefits of homeownership that can really add up.
The mortgage interest deduction is typically one of the largest tax breaks available to homeowners, as it allows you to write off interest on up to a $500,000 loan if you're a single tax filer, or a $1 million loan if you're a joint filer. This deduction can be especially lucrative during the early years of your mortgage, when the majority of what you pay each month is applied to interest as opposed to your loan's principal. Along these lines, if you're a couple filing jointly, you can also deduct the interest you pay on up to $100,000 in home equity debt.
The average American household pays a little more than $2,000 a year in property taxes. But in some states -- namely, New Jersey, New Hampshire, and Vermont, which currently top the list of states with the highest property taxesOpens a New Window. -- that figure can be considerably higher. There's an upside to paying high property taxes though, and it's the ability to take a larger deduction on your taxes. One thing you'll need to remember about this deduction is that you must claim it the year you actually make your payments. Since property taxes are typically paid quarterly, you might, for example, pay your first quarter taxes for 2017 in December of 2016. If that's the case, then you'd actually take a deduction for that payment on your 2016 taxes.
Some borrowers pay points on their mortgage in exchange for a reduced interest rate. Points are essentially an up-front fee you give your lender when you sign your mortgage. One point on a mortgage is equal to 1% of your loan value, so if you take out a $200,000 mortgage and pay one point, you'll spend an extra $2,000. The good thing about points is that they can work as a tax deduction, if not right away then over time. If the points you pay are in line with the industry standard, and the purpose of your mortgage is to purchase your primary home, then you're allowed to take a full points deduction right away. Otherwise, you can still take the deduction, but you'll need to spread it out over the life of your home loan.