Year-end Mortgage Tax Tips

January is the time for making resolutions for the new year. It's also a good time to gather your financial information to make sure that you've got everything organized when it's time to pay the taxman in the spring.

The basics

Whether you've done a mortgage refinance, or taken a second mortgage, your lender should send you a Form 1098 annually, which includes the amount of mortgage interest that you paid during the year. In most cases, that amount is tax-deductible. You'll need to file an itemized Schedule A, but the savings will be well worth it.

You should also receive an annual escrow statement, indicating how much of your mortgage payments were used to cover expenses like homeowner's insurance and real estate taxes. If this doesn't land in your mailbox in a timely manner, call your lender and ask for this information. It's important-real estate taxes are fully deductible. Interest and taxes paid through your mortgage can add up to substantial tax savings.

More deductions, please

If you have a second mortgage on your property, such as a home equity loan or a home equity line of credit (HELOC), much of the interest paid on those loans is deductible. Every dollar used to finance home improvement projects up to $100,000 reduces your taxable income dollar for dollar.

Loan points and seller concessions-basically points paid by your lender-are deductible, as well, though you'll need to divide your point deductions by the length of your mortgage term in years. For example, a borrower with a 30-year mortgage loan gets to deduct 1/30 of the paid points every year, until the loan is paid off or refinanced.

Refinancing tax breaks

Refinancing a loan with prepaid points presents a tax break that many homeowners don't know about. When you refinance mortgage, you may deduct the entire balance of the remaining points, and start counting years anew based on the points included in your refinanced loan. If you refinance a 30-year mortgage after four years, that's 26 years' worth of points deductions you can take all at once.

So, put down the eggnog for a second and gather up your mortgage statements and tax forms. After all, nothing's merrier than saving a whole lot of money at Uncle Sam's expense.