Mortgage Interest Deduction
One deduction homeowners can take advantage of is the mortgage interest deduction. To get the mortgage interest deduction, your mortgage must be secured by your home — and your home can be a house, trailer, or boat, as long as you can sleep in it, cook in it, and it has a toilet.
Prepaid Interest Deduction
Prepaid interest (or points) you paid when you took out your mortgage is generally 100% deductible in the year you paid it along with other mortgage interest.
If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year.
Property Tax Deduction
You can deduct the real estate property taxes you pay. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement.
If you bought a house this year, check your HUD-1 settlement statement to see if you paid any property taxes when you closed the purchase of your house. Those taxes are also deductible.
PMI and FHA Mortgage Insurance Premiums
You can deduct the cost of private mortgage insurance (PMI) as mortgage interest if you itemize your return. The change only applies to loans taken out in 2007 or later.
What’s PMI? If you have a mortgage but didn’t put down a fairly good-sized down payment (usually 20%), the lender requires the mortgage be insured. The premium on that insurance can be deducted, so long as your income is less than $100,000 (or $50,000 for married filing separately).
The Nonbusiness Energy Tax Credit lets you claim a credit for installing energy-efficient home systems. Tax credits are especially valuable because they let you offset what you owe the IRS dollar for dollar, in this case, for up to 10% of the amount you spent on certain upgrades.