In the US, homeowner's exemptions are available when an individual files a federal tax return and when he pays state or local property taxes. Mortgage interest, personal mortgage insurance (PMI) payments, and loan origination points are some of the more popular deductions. Some homeowners may be eligible for energy improvement and casualty loss deductions. Several local areas have homestead exception programs that reduce the amount of real estate taxes for senior citizens and disabled individuals.
Money paid to a mortgage lender for interest, real estate taxes and PMI insurance are legitimate homeowner's exemptions. Property owners are able to deduct these amounts from their adjusted gross income on federal and local tax returns. These deductions reduce their overall tax liability. Homeowners who own more than one property are able to deduct these expenses from all of their properties.
Other homeowner's exemptions apply to structural damage that might occur. Properties that are damaged or destroyed as a result of natural causes or vandalism are eligible for additional tax exemptions. Any out-of-pocket expenses that are not reimbursed by an insurance company may be eligible.
Some homeowners are eligible for first-time homeowner's exemptions. These are considered to be interest-free federal loans that help offset the purchase price of homes in a soft housing market. Depending upon the year in which the credits were claimed, homeowners may be required to repay the amounts of the exemptions in installments.
Home equity loan interest is yet another type of tax exemption. Some homeowners take out additional lines of credit against the equity they have in their homes to finance additional purchases or free up some liquidity. Interest charged and paid on these credit lines is one of the types of homeowner's exemptions.
Reverse mortgage payments and improvements made to homes that are declared historic are additional tax exemptions. Amounts withdrawn from certain individual retirement plans towards the purchase of a home are eligible for tax and penalty exceptions as well. In addition, some individuals may be able to deduct certain home expenses that are used for operating a home office or business.
Real estate taxes are typically assessed by local governments on a quarterly basis. The taxes typically go towards public schools and community services and are based on the appraised value of the home. Some states offer exemptions for disabled individuals. The amount of real estate taxes is reduced by taking a certain percentage off of the appraised value. Senior citizens who are retired and meet certain income restrictions may also be eligible for a real estate tax exemption.