South Florida Luxury Home & Your Taxes

Tax Deductions On A Luxury Home In South Florida

South Florida is well known for its luxurious lifestyles and beautiful beaches, and homes found in South Florida tend to be very expensive. There are many tax deductions associated with buying a home, but the main deduction results from mortgage interest paid on your South Florida luxury home loan. This article will focus on South Florida mortgages and the deductions you can claim as a South Florida homeowner.

First Mortgage Interest

To start this discussion it is important to understand “first” and “second” mortgages. A first mortgage is a loan that takes precedence over any other loans against the property (e.g., second mortgages). Second mortgages are those where another party has a lien or claim against the property if you cannot make the payments on your first mortgage.

Itemize Deductions On Your South Florida Luxury Home

The interest on a first mortgage may be deducted, but only if you itemize deductions when filing your tax returns. If you take a standard deduction when filing income taxes, you will not enjoy this deduction because it requires itemizing homeownership expenses. As a result, many people don’t bother to include their luxury homes in their tax deductions and they miss out on this potentially very lucrative deduction!

Deductible Mortgage Interest

When computing deductible mortgage interest some areas may limit the amount. For example, if you buy a South Florida home for $3 million dollars with $2.5 million dollars borrowed under the first mortgage you can deduct only $50,000 of the interest associated with this loan (because it is not considered deductible mortgage interest). However, if your home was purchased for $500,000 and you put 20% down ($100k), then you can deduct all of the approximate $32,000 associated with this loan.

New Tax Relief Act

The new tax relief act which became effective January 1 st 2013 makes changes to South Florida luxury homes interest deductions. South Florida luxury homeowners are now permitted to deduct interest on mortgages up to $1 million dollars ($500k if you are married filing separately).

Second Mortgage Interest Deduction On South Beach Miami South Florida Homes

The second mortgage interest deduction is more liberal under the new tax relief act because it allows deductions for interest on up to $100,000 of debt incurred on secondary residences. Thus, South Florida homeowners may deduct all the interest associated with their second mortgages; however, these numbers may need to be computed separately when filing income taxes. The total amount of deductible mortgage interest must remain within the $1 million dollar rule (or $500k if filing separately).

Contact South Florida Luxury Home Attorney, Leah Mayersohn for your luxury home buying legal needs today.