Friday, September 28, 2007
Is Your Home a Tax Trap?
If you've refinanced your mortgage, you may owe the IRS more than you thought. - by Ellen Hoffman, Personal Finance, BussinessWeek.
"Have you refinanced your mortgage and taken a chunk of the equity in cash? Will you do so when your adjustable-rate loan resets its interest rate? If you fail to follow some little-known rules for calculating your home mortgage deduction, you may be writing off too much interest. Instead of saving on taxes, you could wind up owing them."
"In general, the IRS lets you deduct 100% of the interest you pay on one or more home mortgages, up to a total loan value of $1 million. But when you refinance and withdraw cash, the rules change: Only the interest on your ***original mortgage balance***, plus an additional $100,000, qualifies for a deduction. (If you want to take out more cash, use a home-equity loan or line of credit. The law allows a separate deduction for interest on borrowings of up to $100,000.)"
***Acquisition indebtedness is debt that is incurred in acquiring, constructing, or substantially improving the principal or second residence of the taxpayer and is secured by such property.
"There's no sign the IRS is currently hunting down taxpayers who may be miscalculating the mortgage deduction, but the error could trip you up in an audit. Rosica says the best way to protect yourself is to make sure you calculate this year's taxes correctly. If you've taken excessive deductions in past years, you can also file an amended return."
Read the entire article HERE.
For further clarification ask the advice of a good tax attorney or tax accountant.
"Have you refinanced your mortgage and taken a chunk of the equity in cash? Will you do so when your adjustable-rate loan resets its interest rate? If you fail to follow some little-known rules for calculating your home mortgage deduction, you may be writing off too much interest. Instead of saving on taxes, you could wind up owing them."
"In general, the IRS lets you deduct 100% of the interest you pay on one or more home mortgages, up to a total loan value of $1 million. But when you refinance and withdraw cash, the rules change: Only the interest on your ***original mortgage balance***, plus an additional $100,000, qualifies for a deduction. (If you want to take out more cash, use a home-equity loan or line of credit. The law allows a separate deduction for interest on borrowings of up to $100,000.)"
***Acquisition indebtedness is debt that is incurred in acquiring, constructing, or substantially improving the principal or second residence of the taxpayer and is secured by such property.
"There's no sign the IRS is currently hunting down taxpayers who may be miscalculating the mortgage deduction, but the error could trip you up in an audit. Rosica says the best way to protect yourself is to make sure you calculate this year's taxes correctly. If you've taken excessive deductions in past years, you can also file an amended return."
Read the entire article HERE.
For further clarification ask the advice of a good tax attorney or tax accountant.
Labels: Bay Area Real Estate, BusinessWeek, IRS, Mortage deduction
Links
