Tax Time: Credits and Deductions for Homeowners

It is tax season and many of you may feel the pressure of filing. What will you owe? What will you get back? With so much information about credits, deductions and forms to fill out, the process can prove to be a bit overwhelming. Not to worry–while there are many tedious details involved in filing your taxes, it is really a simple task, and it’s just a matter of knowing what you can deduct and what credits you may be eligible for.

Along with deductions and credits, San Diego County offers assistance programs for developers and home owners such as:

-Condominium Conversion Tenant Assistance

-Developer Financing and Incentives

-First-Time Homebuyer Assistance

-Property Rehabilitation and Assistance

-Rental Assistance

For more information regarding these programs you can visit the City of San Diego’s Housing Assistance Page here:

If you are a first time or already existing home owner, there are federal tax credits and deductions that may be available to you if you qualify. For first time homebuyers, you should look into the:

First Time Homebuyer Credit-


-for purchases made in 2009, 2010, or 2011

-qualified first time buyers of a principal residence

-reduces tax bill or increases refund depending on the tax you owe

-fully refundable meaning the IRS refunds the credit even if you owe no tax, or the credit is more than the tax owed


-you must repay the credit if you sell your home within the first three years

-does not apply to tax payers constructing their own home

-credit is reduced or eliminated for higher-income taxpayers

-vacation and rental homes are not eligible

-you are not eligible if you purchase the home from a close relative (spouse, parent, grandparent, child, or grandchild).

-you are not eligible if you are a non-resident or alien

Additional Information:

-the credit is worth ten percent of the purchase price of the home with a limit of $8,000

-the credit is available to those with qualifying income levels who have never owned a home or have not owned a home in the last three years.

-the credit cannot be claimed until the entire purchase is complete.

-the credit is based on your MAGI (modified adjusted gross income). The limit for married couples is $150,000 per year and $75,000 per year for single tax payers.

For more information on the First Time Homebuyer Credit please visit the IRS website at,,id=204671,00.html

There are strong initiatives circulating around the issue of energy conservation and efficiency. The Fed is offering an Energy Tax credit and here are the specifics:

Energy Tax Credit-


-the credit is offered to those who improved their home by installing appliances designed to boost energy-efficiency in the home.


-only available in main residence and not applicable to vacation or rental properties

Additional Information:

-the appliances must be installed in the home for at least five years

-the following elements that can be upgraded with energy efficiency products:

-exterior doors and windows

-storm windows


-metal roofs


-central air conditioning and heating

-geothermal heat pumps

-hot water boilers

-advanced main air circulating fans

-biomass fuel stoves with thermal efficiency rating of 75 percent or more

-asphalt roofs with cooling granules

-the credit is worth 30 percent of the purchase price of the qualified energy efficient product with a limit of $1,500. [EXCEPTION] there is no credit limit amount through December 31, 2016 for the following products:

-solar panels

-solar powered water heaters

-geothermal heat pumps

-photovoltaic systems

-small wind energy systems

-fuel cells

Important note: if you plan on selling your home, you must reduce the cost basis of your home by the dollar amount you claim for residential energy tax credits.

For more information on the federal Energy Tax Credit, please visit the Energy Star website at

There are two tax deductions that homeowners can take advantage of—Home Mortgage Interest deduction and the Mortgage Insurance Premium deduction.

Home Mortgage Interest Deduction-

Forms needed:

-Form 1098-Mortgage Interest Statement, which can be acquired from each mortgage lender. This form includes the total interest paid during the tax year.

-HUD-1 Settlement Statement from the escrow company if you bought or sold a home

-Publication 936 (page 9 includes a worksheet to calculate the limitation on your mortgage interest)

-Schedule A


-the mortgage interest is interest paid on loans to buy a home, home equity lines of credit and construction loans

-there is a limited amount you can deduct: only the interest paid on your main home and second home. Interest paid on third or fourth homes are not deductible.

-the mortgage must be secured debt on a qualified home.

-secured debt: the mortgage loan must be secured by your home in order for the                     interest to be tax deductible. In the case of default, the home should satisfy the                     debt and be recorded under any state or local law that applies.

-points paid on acquisition debt for primary and secondary residences are fully deductible in the year they are paid. For more information on points you can check out the “points” section of the Publication 936 at



-you cannot deduct payments made for someone else if you are not legally liable to make them. For example, there must be a debtor to creditor relationship between you and the lender. You and the lender must intend for the loan to be repaid.

-there is a limit for loans used to buy or build a residence called “home acquisition debt”

Home Acquisition Debt Restrictions:

-Home Acquisition Debt is considered to be any loan whose purpose is to acquire, construct, or substantially improve a qualified home.

-you cannot deduct interest on more than $1,000,000 of home acquisition debt for your main home and secondary residence, and the limit is reduced to $500,000 if you are married filing separately.

-page 9 of Publication 936 allows you to calculate your allowable mortgage deduction

Home Equity Debt:

-Home Equity Debt is considered to be any loan whose purpose is not to acquire, construct, or substantially improve a qualified home, or any loan whose purpose was to substantially improve a qualified home, but exceeds the home acquisition debt limit.

-you cannot deduct interest on more than $100,000 of home equity debt for your main or secondary home.

Home Construction Loans:

-you can deduct interest on mortgages used to pay construction expenses

-the proceeds must be used to acquire the land and for the construction of the home.

-any expenses incurred in the 24 months before the construction was completed counts toward the $1,000,000 limit on home acquisition debt.

-if you deduct the interest on a home construction loan for at least two years and sell the property rather than use it as a residence, then you may have to restate your returns for the years you deducted interest.

Your Home Mortgage Interest Deduction is pretty simple to file, you just need to prepare with the following steps:

-add up the interest paid as reported to you on Form 1098 (provided to you by                      each lender) and put the total on Schedule A.

-make sure the Schedule A matches the value in Form 1098.

-if you bought or sold property during the year, you may want to seek a tax                             professional for guidance as well as if you are planning on buying or selling real                       estate so you can understand the tax consequences of the decision.

For more information on the home mortgage interest deduction please visit the IRS website at

Mortgage Insurance Premium Tax Deduction-

To qualify for the mortgage insurance premium tax deduction, the insurance policy must be for home acquisition debt on your first or second home.


-insurance premiums are on itemized tax deductions and reported on Schedule A Line 13.

-you can use this deduction if the contract was issued in 2011.


-the mortgage insurance policies on cash-out refinances and home equity loans do not qualify for the deduction.

-if the adjusted gross income (AGI) on Form 1040 line 38 is more than $100,000 ($50,000 if married filing separately) premiums otherwise deductible are reduced or can be eliminated.

-if your AGI is more than $109,000 ($54,000 if married filing separately) you are not eligible to deduct the mortgage insurance premium.

These are credits and deductions you as a taxpayer may be able to take advantage of. The information provided is purely for helpful knowledge, but for any further questions or counsel please refer to a CPA, tax professional or visit the IRS at

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