Tax Tips for Real Estate Investors

These tax tips are taken from the IRS website. Keep them in mind when you prepare your returns this year.

Is the mortgage interest and property tax on a second residence deductible ?

The mortgage interest on a second home which you use as a residence for some portion of the taxable year, is generally deductible if the interest satisfies the same requirements for deductibillity as interest on a primary residence. Real Estate taxes paid on your primary and second residence are generally deductible. Deductible real estate taxes do not include taxes charged for local benefits and improvements that increase the value of the property. For more information, refer to :

Publication 17, Your Federal Income Tax for Individuals.

Chapter 24 Tax Topic 503, Deductible Taxes.

Publication 530, Tax Information for First-Time Homeowners.

Publication 936, Home Mortgage Interest Deduction.

Tax Topic 505, Interest Expense.

I have a mortgage for my primary residence and a second mortgage for land that I intend to build a home on. Can the interest be deductible for the second home ?

Unless you have begun construction of a home on the bare land that you can occupy within 24 months, the land would be considered an investment and the interest you paid on the second mortgage would not qualify as deductible mortgage interest. However, it would constitute investment interest if you itemize your deductions. For more information, refer to :

Publication 550, Investment Income and Expenses, chapter 3.

Publication 936, Home Mortgage Interest Deduction.

Tax Topic 505, Interest Expense.

Is interest on a home equity line of credit deductible as a second mortgage ?

You may deduct home equity debt interest, as an itemized deduction, if you are legally liable to pay the interest, pay the interest in the tax year, secure the debt with your home, and do not exceed certain limitations. For more information, refer to :

Publication 936, Home Mortgage Interest Deduction.

Tax Topic 505, Interest Expense.

I refinanced my home last year and paid points. Are they all deductible this year ?

Generally points paid to refinance your home are not deductible in their entirety in the year paid. They are "amortized" or deducted over the life of the loan. For more information, refer to :

Publication 936, Home Mortgage Interest Deduction.

Tax Topic 504, Home Mortgage Points.

I've added this information on the site in order for you to better understand some of the tax issues while you are planning to invest in second homes or holiday villas in Orlando. Please visit the IRS website for more information about this subject.

Eli Magen, Licensed Mortgage Specialist.

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