Massachusetts Real Estate

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Tax Deductions to Remember When Getting a Home Loan

When borrowing money to buy a home, there are certain deductions that you are afforded by the ole tax man that you should be aware of come tax time in April. The following are some of the deductions you may forget about when buying a home:

POINTS ~ Points on a home loan are tax deductable if they are used to bring down the mortgage interest rate. For those that don't know a point is 1% of the loan amount. On a $200,000 mortgage a point would equal $2000.00. You would only want to pay points on a loan if you knew your were going to be in the home for a while.

In order to understand if paying points makes sense you need to calculate the mortgage payment amount with and without points. By looking at the spread between those amounts you can determine how long you would need to be in the house before it would pay off for you.

Getting back to points, origination charges that constitute a "service fee" are not tax deductible.

PRO RATED MORTGAGE INTEREST

When you are buying a home depending on when in the month the home sale closes, the buyers pay either a small or large amount of pro-rated mortgage interest for the month in which they close. Whether it's large or small, a home buyer can write that amount off. The Final Closing/Settlement Statement will show just how much the buyer is due.

PRO RATED REAL ESTATE TAXES                                                                                                                                            

Often times a seller will send the local tax collector's office a check for Real Estate taxes prior to the closing. In many circumstances, however, the buyer pays a pro-rated portion of the taxes for the year at closing. This is one that is often forgotten.

NEW HOME CONSTRUCTION LOAN INTEREST

As long as the construction period doesn't last more than two years before you make the new home your "principal residence," you can write off the interest for that new construction loan.

PRE PAYMENT PENALTIES

Although most home loans today do not have pre-payment penalties on rare occasions you will still find one. If your loan does have a pre-payment penalty and you do pay off the loan early, these penalties are tax deductable.

 

 

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The above information on tax deductions to remember when getting a home loan was provided by Bill RE/MAX Executive Realty Hopkinton MAGassett, the team leader for the #4 RE/MAX Team in Massachusetts in 2007. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 22+ Years. Bill's office is conveniently located in the center of Hopkinton MA at 77 Main Street.

I have a passion for Real Estate and love to share my marketing expertise! I would welcome the opportunity to earn your business.

For Metrowest Massachusetts Real Estate and homes see Metrowest Mass Home Sales. Want to have MLS access to beat other buyers to your dream home? Sign up with no obligation at my MLS Property Finder Site.

I service the following towns in Metrowest Massachusetts: Hopkinton, Milford, Upton, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Grafton, Northbridge, Uxbridge, Franklin, Douglas, and Framingham MA.

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Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

Comment balloon 83 commentsBill Gassett • November 14 2008 03:25AM

Comments

Great points! I wish you would also include this information in the Home & Credit Savvy group? You constantly write great information for buyers who needs to know about home buying. I applaud you for that.

Posted by Loreena and Michael Yeo, Real Estate Agents (3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co.) almost 11 years ago

Bill - very informative !  Good post regarding the tax deductions the buyer has.  One of the great deductions (after moving into the home) - mortage interest is a biggy too.  Hope all is well in your world ! 

Posted by The Somers Team, Real People. Real Dreams. Real Estate. (The Somers Team at RE/MAX Access) almost 11 years ago

Very helpful info for consumers and TERRIFIC images to go with it.  You've inspired me to add topic this to my "blog ideas" file.  So much inspiration, so little time...

Posted by Margaret Woda, Maryland Real Estate & Military Relocation (Long & Foster Real Estate, Inc.) almost 11 years ago

Loreena, Chris, Margaret - Thanks for commenting. There are times when people forget about common deductions that will certainly save a few bucks on taxes.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Bill - This is great info for those looking to buy a home.  Many people need all the help they can get right now.  I'm sure your readers will appreciate the fact that you pointed out these often overlooked deductions. 

Posted by Erik Hitzelberger, Louisville - Middletown Real Estate (RE/MAX Alliance - Louisville REALTOR-Luxury Homes) almost 11 years ago

Bill - Every buyer needs to know this.  As compared with the total downside of renting.  No deductions or tax benefits there!

Posted by Jim Crawford, Jim Crawford Atlanta Best Listing Agents & REALTOR (Crye-Leike REALTORS®) almost 11 years ago

I work with a lot of first time buyers and will send this link to a couple of them that I know could use additional information with preparing their first taxes as a home owner.   Thanks.

Posted by Cathy Tishhouse, Royal Oak Real Estate (RE/MAX Showcase Homes) almost 11 years ago

HI BILL!

Great information.  Lots of 1st Homebuyers are not aware of this information.  So, I'm sure it's helpful to many folks!

Posted by Yvette Smith, Realtor In Williamsburg VA, Homes for Sale (LONG & FOSTER) almost 11 years ago

Hi Bill- Great info for home buyers, especially first timers.  Hopefully anyone looking to buy real estate in Metrowest Massachusetts will bookmark this site, so they don't forget come tax time!

Posted by Matt Moxhay, Moorestown Real Estate (Prudential Fox & Roach) almost 11 years ago

Bill ~ It's always nice to read a refresher on what is allowed and what is not.  My mind sometimes get muddled....

Thanks,

kk

Posted by Kristal Kraft, Selling Metro Denver Real Estate - 303-589-2022 (The Berkshire Group Realtors) almost 11 years ago

Bill, Thanks for the refresher - many 1st time buyers have no idea.

Posted by Jo Olson, HOMEFRONT Realty @ LAKE Roosevelt - Stevens County (HOMEFRONT Realty) almost 11 years ago

Oh...Bill...this is good! I know that so many people are overwhelmed by the buying process and don't think about the tax benefits. Nice reminder. This is why you are the BEST!! GBU~

Posted by Elizabeth Nieves, Bilingual Raleigh - Durham North Carolina Real Estate Team (The Elizabeth Nieves Realty Group) almost 11 years ago

Thanks for all the comments on the tax deductions everyone should remember come tax time!

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Hi Bill, This is great info to share with home buyers. I remember my first year as a home owner, I attempted to do my own taxes.  Then I gave it to an accountant (just to compare) and he found all those homeowner deductions that I missed.  Years later, he is still my accountant. 

Posted by Jen Bowman, Realtor - Anna Maria Island & Bradenton FL (Keller Williams on the Water) almost 11 years ago

Bill, well stated.  I am sure there are many new home buyers without a clue what they can deduct from their taxes. 

Posted by Leslie Stewart, Realtor, ABR, CRS, Oregon Licensed Broker (Oregon Licensed Broker with Berkshire Hathaway HomeServices Real Estate Professionals) almost 11 years ago

Bill, Great info and well put, I am going to jot down some of your thoughts to add to my presentation!

Posted by Russell Lewis, Broker,CLHMS,GRI (Realty Austin, Austin Texas Real Estate) almost 11 years ago

Hi Bill,

Good info. Now a question for you, at one time points were only deductible if they were acutally paid upfront out-of-pocket, in other words funds deposited into escrow?

Posted by Lynda Eisenmann, Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co (Preferred Home Brokers) almost 11 years ago

I'll have to call you to find out the tax ramifications of Airstream life/ownership!

Posted by Susie Blackmon, Ocala, Horses, Western Wear, Horse Farms, Marketing almost 11 years ago

A good reminder for those of us that have worked with buyers this year... thanks for reminding us

Posted by Marcia Kramarz, CDPE,LMC,CBR (Re/Max Executive Realty) almost 11 years ago

Bill,

Very good advice as always my friend and congrats on the feature.

Posted by Don Rogers, Realtor, Broker, CDPE, GRI, OnullFallon MO & St Charles County MO homes (Keller Williams Realty Chesterfield) almost 11 years ago

Bill,

God info...why not get back something after you give everything.

Posted by Neal Bloom, Realtor CRS-Weston FL Real Estate (eXp Realty) almost 11 years ago

Great post---I don't think Congress will try to revise these (at least for a couple of years.) 

Posted by Diane Bell, Hilton Head Real Estate, Bluffton (Charter 1 Real Estate, Hilton Head, Bluffton, SC) almost 11 years ago

Thanks for the great post. I will bookmark your site.

Posted by Blatt + Cutino, Broker-Associate 831/206-8070*Call today* (Keller Williams Coastal Estates) almost 11 years ago

Just another reason why homeownership is a better option than renting.

Too often when critics compare the cost of ownership versus renting they don't account for these types of financial variables - or the fact that real estate values will appreciate over the long term.

Posted by Mark MacKenzie almost 11 years ago

Lynda - I do not believe you can finance the points and then take a tax credit for them but if the funds are coming out of your pocket and are actually being paid you can deduct them.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Bill, thanks for the wonderful information.  Yes, purchasing a home does give you nice tax write offs.

Posted by Julie Staradumsky, CREN (Keller Williams Realty - Atlantic Shore) almost 11 years ago

Don't forget - Private Mortgage Insurance is now tax deductible and the buyer may also be eligible for a first time homebuyer tax credit.  Of course there are rules and regs around these deductions and credits - just let me know if you need more info.

Posted by Steve Richman (Genworth Financial) almost 11 years ago

Great post -- And great follow up by the other AR members -- Thanks - JE

Posted by Jason Ellis (Coastal REO Solutions - Myrtle Beach Short Sales & REO's) almost 11 years ago

Informative indeed!  I'll add this to my buyer presentation as well.

Posted by Tamara Inzunza, Close-In Alexandria and Arlington Living (RE/MAX Executives) almost 11 years ago

What great information for home buyers Bill.  Buyers often don't know what can and cannot be written off. 

Posted by Patricia Beck, Colorado Springs Realty (RE/MAX Properties, Inc., GRI, CDPE) almost 11 years ago

Hi Bill,

Excellent information for home buyers to remember come tax time! :)

Posted by Suzanne Sands, Somerset MA Real Estate (Pavao Real Estate) almost 11 years ago

Bill - great post and well broken down for people. Though, you forgot one important thing, ... people actually have to make money to pay taxes :) (Ok, ok, its a bad joke, but I couldnt resist :)

Posted by James Wexler (wexzilla.com) almost 11 years ago

Congrats on the pretty gold star!  Great consumer information and a reminder for realtors as well.

 

Posted by Terri Visser, CRS - 12 Years Selling Central Oregon Real Estate (Desert Sky Real Estate, LLC) almost 11 years ago

People should know that these deductions only apply if they itemize their deductions and fore-go the standard deduction.

Posted by Randall Schrader (Competitive Insurance of Dundee) almost 11 years ago

Great post!  This is definitely one to share with all of the first time home buyers.  Thanks...

Posted by Kerry Lucasse, Your Nest Atlanta Real Estate Consultant (eXp Realty - Nest Atlanta Team) almost 11 years ago

Bill, good reminder for all those homeowners to take notice and deduct, deduct, deduct! We need as many as we can possibly get these days.

Posted by Gena Riede, Real Estate Broker - Sacramento CA Real Estate (916) 417-2699 (Riede Real Estate, Lic. 01310792) almost 11 years ago

Bill, This is fantastic list. Specially for the firt time home buyers. I think HOA belong to this list too. Please confirm! Thanks again Dina

Posted by Dina almost 11 years ago

Don't forget the tax credit for 1st timers. It is really a loan but everything helps when you are buying your first home.

Posted by Sabrina Kelley, Woodland Park Colorado Mountain Homes and Land (ERA Herman Group Real Estate) almost 11 years ago

Thanks Bill - great timing! I will remind few of my clients about these...

Posted by Anonymous almost 11 years ago

Thanks Bill - great timing! I will remind few of my clients about these...

Bo

Posted by Bo Kociuba, Realtor - Mustang, Yukon & OKC Metro 405-812-1572 (Berkshire Hathaway HomeServices Anderson Properties ) almost 11 years ago

Great information here  Thank you!

Don Bradbury

Posted by D B, e-PRO, Realtor - Bucks County PA - 610-952-3578 almost 11 years ago

I've found on occassion that even CPA's and tax advisors aren't always on top of things - especially newer laws.  It is really important that we eduate clients and that the public does their own educating too. 

Posted by Stephen Kappre, Helping You Home (KW Hometown) almost 11 years ago

Bill I was considering re-posting this - let me know if this is an option.  This is a good sized article where people won't get overwhelmed to read and learn. 

Posted by Stephen Kappre, Helping You Home (KW Hometown) almost 11 years ago

Great list Bill, many people are unaware that they can deduct their pre-payment penalty.

Posted by Patty Carroll almost 11 years ago

Bill - While I always tell folks to consult whomever does their taxes, this is really good and concise info.  The animations are funny, I often times resemble the second guy:)

Posted by Jason Sardi, Your Agent for Life (Auto & Home & Life Insurance throughout North Carolina) almost 11 years ago

Steve R - Sure if you can forward the info on the private mortgage insurance that would be great.

Steve k - Are you asking to do a re-blog?

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

I would have re-posted if the friendly little arrow was up there waiting for me to re-blog. You don't need to change the post just for me :)

 

Posted by Stephen Kappre, Helping You Home (KW Hometown) almost 11 years ago

Bill ~ Why were you up at 3 in the morning writing about tax deductions? =)

Posted by Terrie Leighton, Reno Real Estate Agent ~ Selling Homes in Reno (Ferrari-Lund Real Estate ) almost 11 years ago

Three in the morning? What clock are you looking at?

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Good points, Bill. You probably already (as we do) sent out a letter in January to your buyers and sellers for the past year that includes a copy of their HUD to make it easier for them to do their taxes.

Posted by Sharon Simms, St. Petersburg FL - CRS CIPS CLHMS RSPS (Coastal Properties Group International - Christie's International) almost 11 years ago

At the end of your blog it says "Posted By Bill....on 11/14/08 3:25 AM.

Posted by Terrie Leighton, Reno Real Estate Agent ~ Selling Homes in Reno (Ferrari-Lund Real Estate ) almost 11 years ago

Bill,

All good things to remember and pass along to our buyers and sellers.

Thank you,

Ann

Posted by Ann Hayden, SelectAnn.com (Berkshire Hathaway HomeServices Select Properties-St. Louis Missouri) almost 11 years ago

It is good to review these deductions with clients.  I always suggest they consult with a tax person when they buy a home -- This is well written and very easy for the consumer to grasp.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) almost 11 years ago

Bill - Great info that all of our buyers should be aware of.  Today every penny counts when it comes to tax time.  Thanks for sharing.  I'm going to print this out as well for my buyer presentations.

As for Terrie's question about the timing of your post at 3:00 am, I'm guessing that's the time it was posted as a Feature and not the time you originally posted it.

Posted by Julie Dumaine-Russell (RE/MAX Alliance) almost 11 years ago

Thanks Bill for some great info. I will put this one in my buyers book for sharing.

Posted by Charles Stallions, 800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl. (Charles Stallions Real Estate Services ) almost 11 years ago

Bill - A timely post full of useful information for new home buyers.

Posted by Jennifer Fivelsdal, Mid Hudson Valley real estate connection ( JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571) almost 11 years ago

Bill, these are wonderful reminders, especially for first-time homebuyers. And I suppose it's not too early to begin thinking about doing taxes again...seems all I do is make $$ and give it away!

Posted by Mara Hawks, Inactive-2012 REALTOR - Homes for Sale Auburn Real Estate, AL (First Realty Auburn ) almost 11 years ago

Bill - Short and Sweet with fun pics - any chance of a reblog?  :)

Posted by Virginia Hepp - Mesquite NV REALTOR, Mesquite NV Homes and Neighborhoods - Search MLS (Desert Gold Realty - Mesquite NV Homes For Sale) almost 11 years ago

Direct and to the point, very user friendly post that defines the process - Great tips.

Amber

Posted by Jason & Amber Gardner, We're Committed to Your Success! (Hasson Company, Realtors) almost 11 years ago

Bill, oh the tax cometh again....it will almost be that time of year. Thanks for the reminder. Time to remind all the new homeowners and let those renters know the tax break they are missing out on.

Posted by Gena Riede, Real Estate Broker - Sacramento CA Real Estate (916) 417-2699 (Riede Real Estate, Lic. 01310792) almost 11 years ago

Thank you for the information.  I will be buying my first home sometime soon. This post made me think of things that I would have not known about. 

Posted by Jason Fleming (Jason Fleming Agency INC) almost 11 years ago

Amber & Jason - I am glad you have found this post to be helpful.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Nice tax advice for your Massachusetts buyers out there <and all over!>  I hear that people who don't itemize can now itemize interest!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 11 years ago

Bill - thanks for the reminders! Gee, I knew all that stuff back when I was super busy...I used to ask the Sellers to pay closing costs that were not tax deductible and let the Buyer pay the ones they could deduct - points come to mind.

Posted by Sharon Alters, Realtor - Homes for Sale Fleming Island FL (Coldwell Banker Vanguard Realty - 904-673-2308) almost 11 years ago

Renee that is interesting. I did not know that.

Sharon - Your welcome. There are many 1st time buyers who have no clue that these items can be deducted from their taxes.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

Bill - what an educational post for buyers and a reminder for us (especially those of us who still need to file 2007!)

Tina in Virginia

Posted by Tina Merritt, Virginia Real Estate (Nest Realty) almost 11 years ago

Thanks Tina I appreciate the compliment:) There are always deduction that people forget about.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 11 years ago

bill  - great outline of the IRS secrets that make the difference so often when deciding to buy versus rent, really tips the scales, thanks

Posted by James Wexler (wexzilla.com) almost 11 years ago

Great info... This should be a re-blog!

Posted by Jason & Amber Gardner, We're Committed to Your Success! (Hasson Company, Realtors) almost 11 years ago

Bill,

Congrats on the gold star and thanks again for the great post!

Ann

Posted by Ann Hayden, SelectAnn.com (Berkshire Hathaway HomeServices Select Properties-St. Louis Missouri) over 10 years ago

When it comes to taxes, we can never have enough clarification, and you (of course) do an excellent job here, especially helpful for BUYERS... Great job---and well done GOLD STAR!!

Posted by Mara Hawks, Inactive-2012 REALTOR - Homes for Sale Auburn Real Estate, AL (First Realty Auburn ) over 10 years ago

These are deductions that many consumers are not aware of.  It is important information to put out there for them so they can benefit from them.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 10 years ago

This is important for the consumer to remember.  Often they do not look at the tax benefits when they are determining whether or not it is a good time to buy!  I also discusse the new tax credit (which is repaid over time) - as another reason to think about buying vs. renting!  Very nice post, Bill. 

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 10 years ago

Bill,

This really is good info.  Easy to understand too.  I would have re-blogged it if allowed!

Posted by Marlene Pellegrini over 10 years ago

Did not know that about prepayment penalites!  Great info!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) over 10 years ago

Bill, this is good stuff! I've heard it suggested by some that we send out the Hud-1 settlement statement to each of our buyers the first of January and explain the foregoing deductions. By the way? I tagged you for a Book MeMe...yeah, I know, but someone tagged me first. ;-)

Pepper

Posted by Mesa, Arizona Real Estate Mesa Arizona Realtor, AzLadyInRed (Homes Arizona Real Estate LLC) over 10 years ago

Thanks everyone for commenting on "the tax deductions to remember when getting a home loan"!

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill

Great tips and ideas to get new buyers closed...thanks

Posted by Tim Ludemann over 10 years ago

Tim - Thanks I appreciate the compliments.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill,

Also time to get those HUD's ready to mail and email to this years sales.

Posted by Daniel J. Brudnok, REALTOR, SRES, e-PRO,ABR,GREEN,CSP (Berkshire Hathaway Home Services Fox & Roach, REALTORS - Exton - PA License #RS-225179-L / Delaware License #RS-0025038) over 10 years ago

I know I read this before, but I don't see a previous comment from me.  Hmmm.  Well, it's definately worth a comment!  This is a great list, and one that any homeowner can use - especially first-timers!

Posted by Margaret Woda, Maryland Real Estate & Military Relocation (Long & Foster Real Estate, Inc.) over 10 years ago

Bill

Great post. I agree many forget about the prorated taxes that they pay at closing and often this is missed by many since they will often not get a tax form for this is why we always provide all our clients in Jan a copy of their hud and remind them to give it to their tax accountant.

I also agree that people do not always get the straight correct opinion on paying points. The reality is that the mortgage professional should provide a break even analysis. Also tell the client that they should discuss the overall decision with their tax professional since some of the decision should be based on tax planning. The reality in a very volatile interest rate market in most cases paying points does NOT make the best sense. Again in a market where rates are flat for 6 months or more then in makes more sense. In todays market where in a 90 day time period rates can vary over 1 full point in rate 5.375 to 6.75 over the last 90 days or so it is volatile and does not make sense to pay a point to lower the rate in my opinion.

The comments on PMI are very important but also must be reviewed with a true tax profession since the income of the family will effect the ability of the PMI being tax deductible.

This is why I have stated for sometime that we all should have GREAT tax people that we work with and can refer to our clients.

Thanks again for your value and info

Posted by Edward moloney, Loan Officer Providing 5 STAR SERVICE (Edward Moloney Loan Officer GMH Mortgage Services) over 10 years ago

Ed - Thanks for taking the time to comment in such detail. There is no question that having a good account is important. A skilled accountant can certainly save you a few bucks at tax time. Of course having a good mortgage officer and Realtor makes a good package deal as well:)

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

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