If you’re a homeowner, you know that your mortgage statement matters. It sets out in writing exactly how much you owe in principal and interest payments each month, and it’s an important document to have when it comes to filing your taxes. In fact, understanding the items on your mortgage statement can help you save money come tax time. Here’s why:
Interest paid on a mortgage is generally tax-deductible in the US. To take advantage of this deduction, you must itemize your deductions on IRS Form 1040 Schedule A. This means that instead of taking the standard deduction, you claim all of the eligible deductions for which you qualify. The amount of interest paid on your mortgage is one such deduction – and it can add up to significant savings over time!
Let’s look at an example: Joe and Jane Smith purchased a home for $200,000 with a 30-year fixed rate mortgage at 4% interest. Their monthly payment consists of $955 in principal and $743 in interest payments. Over the course of one year, they will pay $8,916 in interest payments on their mortgage loan. If Joe and Jane take the standard deduction (which is currently $12,400), they won’t be able to deduct any of their mortgage interest payments from their taxable income. However, if they itemize their deductions and claim their mortgage interest payment as an eligible deduction (up to $1 million), they could save up to $2,323 on their taxes!
You don’t need to wait until tax time to start saving money either; by understanding the items on your monthly mortgage statement now and taking advantage of all available deductions each year, you can start building up savings right away! Keep track of any property taxes paid during the year as well – these are also deductible expenses when it comes to filing taxes.
It pays off (literally!) to stay organized when it comes to understanding your mortgage statement and taking full advantage of any applicable deductions come tax time. Make sure that all documentation related to your home loan – including monthly statements – are kept organized throughout the year so that you don’t miss out on any potential savings come April 15th!