When you take on an FHA housing loan, you should be aware of the impact it can have on your taxes. It not only changes your financial situation, but it can have an effect on your year-end tax filings. As with any major financial decision, it’s important to talk to your tax return preparation service about what’s changed over the last year. If you file your taxes on your own, then you may want to consider hiring someone to do them for you for at least the first year after you take out an FHA loan.
While your tax specialist will be able to tell you how the loan specifically affects your taxes, let’s look at what the law has to say about it. The IRS has rules about FHA mortgage loans listed on its website IRS.gov. Their rules state that any qualified mortgage insurance is something you can treat as home mortgage interest. All of this home mortgage insurance has to be related to the acquisition of a new home. It only counts for loans that were issued after 2006, though.
The IRS websites define home mortgage interest as any kind of interest that is paid on a home you own and that is paid as part of a secured loan. According to their rules, you may be able to deduct that interest from your tax returns at the end of the year. This applies to home equity loans, a line of credit and a second mortgage.
You can only deduct such payments from your tax returns if you have filed a 1040 return and you have itemized deductions. So, you need to have your taxes prepared in such a way that these can count in your favor. If you don’t let the IRS know about changes to your financial status, such as an FHA loan that you have been approved for and have been making payments on, then they may not know about it. You cannot expect them to point out your mistake.
You have to take the initiative to learn about how this loan affects your finances, and particularly your taxes. If you have questions about it, then you should not hesitate to talk to a tax specialist, even outside of tax season. It’s important to know for sure what you can expect from your return and what kind of impact the loan will have on your return and your taxes. You don’t want to be counting on a major deduction this year if you’re not actually eligible for it.
In certain cases, you may need to file an amended return or include other forms with your returns in order to be eligible for the deduction or to show that the deduction needs to take place. An FHA loan can complicate your taxes, and you want to be sure you are taking the right steps to file your return correctly and list this major change on the return as honestly as possible.