Many homeowners, especially first-time buyers, are shocked to see the total amount of interest they pay on a mortgage. Although the interest is tax deductible, it is still money out of their pockets. Maximize Tax Deductions. Mortgage interest and property taxes on a first and second home are fully tax deductible if you itemize deductions. Points paid to obtain a mortgage on a new primary residence are fully deductible by the buyer in the year of the purchase, regardless of whether the buyer or seller pays the points.
Points are an advance interest charge imposed by lenders and can lower the mortgage interest rate.
Each point equals 1 percent of the mortgage amount. If, in the future, you refinance your home mortgage, the points must be amortized over the entire length of the loan, meaning the deductibility of the points must be spread out over the life of the loan. Keep Good Records. A house is considered a capital asset. Like any other investment, if it is sold for a profit, capital gains tax may be owed.