Hawaii Pre-Licensing National Practice Exam

What can homeowners deduct when itemizing deductions for their annual taxable income?

1. Property taxes paid

2. Home insurance premium

3. Interest paid on the home mortgage

4. Home repair costs

The correct answer is: Interest paid on the home mortgage

Homeowners can deduct the interest paid on their home mortgage when itemizing deductions on their annual taxable income. This deduction is significant because the mortgage interest deduction can result in substantial tax savings for homeowners, especially in the early years of a mortgage when interest payments are typically higher. The IRS allows this deduction for both primary and secondary residences, which can incentivize homeownership and support the housing market. Homeowners must ensure that the mortgage is secured by their home and that they are legally liable for the debt to qualify for this deduction. Property taxes paid can also be deducted, but it does not represent the sole benefit for homeowners. Home insurance premiums and home repair costs typically do not qualify for deduction as personal expenses. Understanding the scope of these deductions is vital for homeowners navigating their finances and tax liabilities.