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.

Labels: Bay Area Real Estate, BusinessWeek, IRS, Mortage deduction

Losing your house to foreclosure, involved in a "Short Sale?" Not only do you lose your house, your credit and have to deal with all the stress that goes with it, but any debt forgiven by the lender is considered taxable to the IRS. Seems a bit unfair to someone with a financial challenge ahead of them.

"A bill that would give homeowners facing foreclosure a tax break when lenders forgive part of their debt would make up for lost revenue by collecting more capital gains taxes on the sales of some second homes claimed as primary residences."

"HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, would eliminate a provision of the tax code that allows the IRS to tax debt that's forgiven as part of a foreclosure or loan modification as income."

"NAR said the bill would restore "fundamental fairness for homeowners in financial and economic distress" by eliminating taxes on the "phantom income" generated by foreclosures and workouts."

View the entire article HERE. (Inman News)

"To make up for the bill's $1.97 billion impact on tax revenue over the next decade, it would also tighten the rules for counting a second home, vacation or rental property as a primary residence for tax purposes. Under current law, up to $250,000 (or $500,000 if married filing jointly) of the gain on sale proceeds from the sale of a primary residence are exempt from capital gains taxes."

Labels: Bay Area Real Estate, Foreclosure, Inman News, IRS, NAR, Short Sale, Tax Relief

Labels: April 15, Income Tax, IRS, Tax Deadline

Today's your last chance to file taxes and extensions.

Labels: April 15, Income Tax, IRS