Helping With Your Deductions

About this time of year, most of us are nervously contemplating April 15th. Here are a few reminders courtesy of my excellent tax preparer and IRS publication 936, which explains mortgage deductions. The rule of thumb is that interest from a first mortgage is fully deductible as long as your mortgage balances don’t exceed $750K unless you purchased before Dec 16, 2017, then $1 million (for married couples).

Equity lines are powerful tools for investors wanting to take advantage of opportunities in today’s market. With the limited availability of land loans, this (and seller financing) may become a principal funding source for vacant parcels. Ads encouraging homeowners to tap the equity in their principal residence always have the caveat that interest “may” be deductible. Interest on equity loans, equity lines and cash out refinances is now only deductible if you use the money to buy, build or improve your home. Interest deductions for monies used to purchase rental properties or for business investments are treated differently.

Don’t forget, equity lines and equity loans are secured with a second mortgage against your home. Interest from both your principal and second home mortgages can usually be deducted. You don’t have to use the second home during the year as long as it’s not rented. If rented, a certain amount of personal use is required. Be sure to ask your tax advisor or study the IRS publication before assuming interest is deductible. Points on a purchase are deductible. Points paid on a refinance are pro-rated over the life of the mortgage.

In creative financing, a property may be sold by “wrapping” the underlying mortgage. In this case the buyer pays the seller and the seller continues to pay his mortgage. The seller’s lender is supposed to be notified when a mortgage is being wrapped.  Because this is an encumbrance on title, the lender could accelerate (call) the mortgage so at times, buyers and sellers do not record the agreement. In this case, the interest would not be deductible. Pre-payment penalty payments, common on sub-prime or finance company mortgages, are usually deductible. Even though active duty soldiers receive a non-taxable housing allowance, their mortgage interest is still deductible. Mortgage Insurance premiums are almost always required on purchases with less than 20% down. Sadly, the deduction of mortgage insurance recently expired. Certainly, every situation is different so be sure to research Pub 936 and consult your tax advisor. For most of us, our homeownership deduction is likely the closest thing to an economic stimulus we’ll ever see, especially at tax time. Don’t own a home? Hmmm…bet I know how to fix that!

About the Author

Denise Nakanishi

Denise Nakanishi is a REALTOR Broker with Hawai'i Life. Denise Nakanishi is one of Hilo's most acclaimed real estate agents. She reached the rank of Major in the US Army and is now known by many as "Major Mom." The nickname fits–not only does Denise bring the discipline and mission-oriented attitude you'd expect, she's also caring and compassionate, always looking out for her clients like they're her own family. Having made the Big Island her home since 1987, Denise combines her extensive knowledge of the area with a sharp focus on customer service and the results speak for themselves. She's the recent recipient of the Best East Hawai`i, Best of Zillow, Chairman's Circle Award, President's Circle, Top Producing Agent since 2001, and Realtor of the Year awards. Denise stays ahead of the curve because she's passionate about education–she served as Education Chair for Hawaii Island REALTORS® for many years. She's one of Big Island's best real estate resources, known for her weekly article in the Hawaii Tribune Herald. Denise leads Team Nakanishi for Hawai`i Life, who is committed to their family, work, and community. In her little time away from work, Denise is a committed runner and Grandy. She also devotes many hours to various Veterans' Organizations, the East Hawaii Cultural Center, and the Hawaii Island REALTORS®. You can email me at or via phone at (808) 936-5100.

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