Tax season is looming on the horizon! For many homeowners, preparing for taxes -- collecting the appropriate forms and information not to mention deciphering how it should be applied -- can be just as overwhelming and stressful as filling out the tax forms themselves.
To make sure you get the most out of your home-related taxes this year, we’ve put together a helpful guide on what to do once you receive your “Mortgage Interest Statement” -- one of four forms with the number 1098 (other 1098 forms report charitable donations, tuition expenses and student loan interest) -- in the mail from the company that services your mortgage loan. Mortgage interest on first and second homes is generally deductible for taxpayers who itemize their deductions.
How to Deduct Mortgage Interest
According to Turbo Tax, mortgage interest is typically the largest home-related tax deduction for homeowners. But how do you know how much of your mortgage interest was paid in 2014?
If you paid at least $600 in annual interest (including points and mortgage insurance premiums), you should receive a 1098 form from your lender by January 31. The form will likely be included with your monthly mortgage statement, so before tossing out that envelope, check to see if your 1098 form is hiding in between the usual documents and bills.
If you paid less than $600, check your year-end mortgage statement, and look for the year-to-date amount of interest paid. That will indicate how much mortgage interest you paid in 2014.
Pay close attention to boxes 1, 2 and 4 on your 1098 form. You will need these figures to deduct mortgage insurance on your tax return.
Box 1 indicates the interest you paid on your mortgage between January 1, 2014 and December 31, 2014. This includes interest paid on your mortgage, home equity loan, and line of credit or credit card loan secured by real property. Box 2 indicates the points paid when you purchased your house. Box 4 indicates how much you paid on your mortgage insurance premium between January 1, 2014 and December 31, 2014.
Key Tax Credits Extended Another Year
On December 16, 2014, Congress approved a one-year extension on mortgage interest premium deductions and mortgage debt forgiveness. They will not be renewed for 2015 unless the new Congress takes up the matter again.
The tax break extension covers private mortgage insurance (PMI) premiums as well as premiums paid on Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans.
Don’t confuse private mortgage insurance with homeowner’s insurance, which is not deductible. You will find PMI information on your 1098 form.
Own a vacation home? You can deduct mortgage interest payments and property taxes on that home too. If your vacation home doubles as a rental property, you can deduct its homeowner’s insurance as a business expense, along with maintenance and gardening costs too.
Home Energy-Efficiency Deductions
Several energy-efficient home improvement tax credits are available for 2014, including up to $500 for installation of a qualified higher efficiency HVAC or hot water system in a primary residence. The tax credit is equal to 10% of the installed costs with caps based on each qualified retrofit measure.
The purchase of other energy-saving items, such as insulation, windows, doors and roofs, may also qualify for the 10% tax credit.
Did you build a new home in 2014? You may qualify for an additional $2,000 tax credit if the home’s construction met certain energy efficiency criteria.
Tax credits are also available on select plug-in electric cars and solar/wind technologies through 2016. Additional information on this tax credit program is available here.
Check to see if you qualify for a local energy-efficiency deduction by searching the Florida tax credit database at Energy.gov.