Finance Tax Time

Internal Revenue Service (IRS) allows the deduction of the discount points on your income tax return. Discount points which are one of the most important tax deductions to homebuyers are paid upfront to reduce the mortgage payment.

Calculate the Discount Points

Each point equals one percent of the principal. For example, a 2 discount points on $150,000 mortgage comes to $3,000 ($150,000 x 0.02). The Closing Statements shows how much is your discount points. If you do not see discount points, have no fear. Discount points are also called Loan Origination Fees, Maximum Loan Charges, or Loan Discount.

First Time Homebuyer Discount Points

For a first time buyer, IRS allows to claim the full amount of discount points on the year paid. For example, Joe bought his first home on 2005. In his closing statement, the discount points come to $3,000. Joe claims the full amount on Schedule A of his income tax return.

Discount Points on refinance without home improvement

The homeowners claim the full amount of discount points, when the homeowners refinance towards the improvement of the home. Without the home improvement, the homeowners claim the discount points over the life of the mortgage. For example, Joe refinances his home with a lower interest rate on a 25 year mortgage. The closing statement shows $3000 discount points. Joe claims $120 per year ($3,000 / 25 year mortgage).

Discount Points on refinance with home improvement

The discount points which are paid to improve the home is fully tax deductible on the year paid. The rest are claim over the life of the loan. For example, Joe refinances his home to add a swimming pool on a 25 year mortgage. He paid $20,000 to add a swimming pool. The total mortgage comes to $150,000. The closing statement states $3,000 discount points. Joe claims $400 ($20,000 swimming pool / $150,000 principal x $3,000) + $104 per year ([$3,000 discount points - $400 discount points of swimming pool] / 25 year mortgage).

If the homeowner has an outstanding discount points to claim, the homeowner claims the outstanding discount points on the year of refinance. For example, Joe has $2,000 discount points which are not claimed yet. Joe claims a total of $2,504 ($2,000 outstanding discount points + $400 swimming pool discount points + $104 per year discount points).

IRS yearly update

This article may or not contain the most current tax regulations, and laws. You may want to consider checking with your trusted Tax Advisor or IRS.

Dennis Estrada is a webmaster of mortgage calculators website which calculate the monthly payment, bi-weekly payment, affordability, refinance, annual percentage rate, discount points, and more.

Share This

Filed under: Tax Infomation by admin
No Comments »

Mortgage Interest can be qualified as a Tax Deduction for the qualified home and mortgage. In fact, Mortgage Interest Tax Deduction remains a huge tax breaks for homeowners. Here are the common questions and answers. Internal Revenue Services (IRS) updates the tax laws and regulations every year. Be sure to keep with the current tax laws.

How to claim mortgage interest tax deduction?

The Lender sends the Form 1098 every year. In the form 1098, you can see how much mortgage interest paid. From the form 1098, you transfer the amount to Schedule A Form 1040 of income tax form.

What is secured debt?

A home acquisition that uses mortgage, deed of trust, or land contract is a secured debt. It provides a way for repayment in case of default, establishes the ownership of the home, and records the transaction under the local state of law.

How to distinguish a qualified home?

Any property that has sleeping, cooking, and toilet facility includes house, condominium, cooperative, mobile home, house trailer, or boat. Plus, the home must be first and second home of the homeowner.

Can I deduct mortgage interest for rented out second home?

Yes, you may deduct as long as you use the home more than 14 days or 10% of the calendar year.

Am I allowed to several second home?

If you have more than one second home, you can only use one second home for tax deduction. IRS does not limit which second home to choose. In case of new home purchases, main home disqualifies, and second home sells, you may choose another home as your second home.

What if I rented out part of the home?

You may treat the home as residential if you meet the following. First, the tenant use the rented part as primarily for residential. Next, the rented part does not have separate cooking, sleeping, and toilet facilities.

Does a home under construction consider as a qualified home?

You may consider a home under construction as a qualified home if the home is ready for occupancy in 24 months. The 24 months can start on or after the construction begins.

How about deducting a destroyed home?

In case the home was destroyed by fire, storm, tornado, earthquake, or other casualty, you can continue to deduct mortgage interest. However, you must rebuild the home, or sell the land.

Do I lose my deduction on refinanced of Grandfathered Debt?

No, it is still considers as Grandfathered Debt after your refinance the mortgage.

Dennis Estrada is a webmaster of mortgage calculators website which calculate the monthly payment, bi-weekly payment, affordability, refinance, annual percentage rate, discount points, and more.

Share This

Filed under: Tax Infomation by admin
No Comments »

The average homeowner deducts $9,650 for mortgage interest, according to analysis released on Thursday.

The National Association of Home Builders says that 35 million taxpayers used the home-mortgage deduction in 2003, deducting $338 billion. Thirty-nine million households deducted real estate taxes for the year, which added $119 billion to homeowner tax breaks across the country.

The average homeowner deducted $3,000 in real estate taxes.

IRS data was used in the NAHB analysis. It stressed the importance of preferences in the tax code for homeowners.

“Because the mortgage interest and real estate deductions significantly reduced federal tax liabilities for homeowners, they are important tools for promoting homeownership,” said Jerry Howard, chief executive officer of the association. “The report shows that millions of working families across the nation use and depend upon these important tax incentives to help them maintain their current standard of living.”

Every state in the country had at least one congressional district that deducted $259 million or more in home mortgage interest and $43 million or more in real estate taxes. The average district contains approximately 80,000 taxpayers who use the mortgage interest deduction, according to the report.

Higher real estate tax deductions coincided with higher home prices and real estate tax rates. New Jersey topped the list for real estate tax deductions, with an average of $6,000 per household.

Rapidly growing populations and high housing prices were evident in areas with the highest mortgage interest deductions. California tops the list with $64.9 billion in deductions for homeowners. The state’s 14th district, which includes parts of San Mateo, Santa Clara and Santa Cruz counties, had an average mortgage interest deduction of $35,000 per household in 2003.

The top ten states for mortgage interest deductions in 2003 were:

California $64.9 billion
New York $19.7 billion
Florida $17.6 billion
Texas $16 billion
Illinois $15.9 billion
New Jersey $12.9 billion
Michigan $11.5 billion
Virginia $11.3 billion

Ohio $10.9 billion
Pennsylvania $10.8 billion

Martin Lukac represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate and mortgage rates. We specialize in daily updates, mortgage news, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!

Share This

Filed under: Tax Infomation by admin
No Comments »