It’s tax season again! Individuals with home mortgages can breathe a collective sigh of relief, as their hard-earned monthly payments usually result in substantial deductions on their annual income tax returns. If you are considering buying a home, refinancing, or applying for a home equity loan, it’s important to understand the tax benefits that could be available to you.

Great news for home buyers : the federal government and most state governments allow you to deduct property taxes and mortgage interest on your income tax returns. Home mortgages can also provide a welcome tax break upon closing, as the points paid on your new loan are usually tax-deductible. Be sure to check with your state franchise tax board, as some regions even offer special incentives and tax breaks for first-time buyers.

For homeowners refinancing their existing home mortgages, many of the same benefits apply, although the manner in which you can deduct points will differ from when you closed the original loan. When you refinance, the amount of your loan origination fee is amortized, or spread over the life of your new mortgage, instead of being deducted in a single lump. If you sell your refinanced home before this amortization period ends, the IRS usually allows you to deduct the remaining portion of your points anyway.

Home mortgages based on the equity you’ve built up can also help you reap big tax rewards. For example, the interest paid on a home equity (second mortgage) or line of credit (HELOC) loan is generally tax-deductible, up to a certain amount. If you use the loan to renovate your kitchen or add a new deck and pay sales tax on purchases related to those projects, you may be able to deduct the amount of tax paid, as well. In other words, home mortgages that are used to enhance the value of your home can also enhance the value of your wallet.

Before making any serious financial decision like as applying for any of these home mortgages, be sure to consult your tax advisor.

Be prepared! Keep your paperwork and files up-to-date and organized, so that all your information is handy at tax time. Receipts from purchases related to home improvements are also important, as well as your monthly mortgage statements.

Article Source: http://www.homeloancenter.com/Articles/Mortgage-Advice/Home-Mortgages.aspx