Finance Tax Time

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!

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Churches often provide ministers of the gospel with the free use of a home, which is often called a parsonage. The value of the parsonage is not subject to income tax up to the rental value of the home. The value of the parsonage is subject to self-employment tax.

Alternatively, a church may provide a minister with a cash housing allowance as a part of the minister’s compensation. Such a housing allowance, up to the fair rental value of the house and associated furnishings, is not subject to income tax. In addition, money the minister receives from the church for utilities is not subject to income tax. However, the minister’s housing allowance is subject to self-employment tax.

Who is a minister for the purpose of this exclusion? While determining who is a bona fide minister for this purpose dependsd on the facts and circumstances, a minister is usually an individual who conducts worship services, serves as a church administrator, or teaches at a religious school or seminary.

Although a taxpayer usually cannot deduct expenses incurred in connection with the production of tax-free income, a minister may deduct mortgage interest and real estate taxes for income tax purposes on a home the minister owns. The law allows the minister these deductions even though the housing allowance is not subject to income tax.

If the minister owns and lives in the home as the minister’s primary residence for two or more years out of the last five years, and then sells it, the minister may use the exclusion of the gain on the sale of the home up to $250,000 if single or up to $500,000 if married.

A minister receives all the benefits of owning a home that any other homeowner receives. The ability to avoid income tax on a housing allowance adds to the benefits of owning a home for a minister. Therefore, a minister should generally prefer to own a home rather than receive the free use of a home owned by the church.

The exclusion from gross income of a housing allowance for a minister is a generous provision of Section 107 of the Internal Revenue Code. The tax benefits allowed to a minister are magnified with the ability to deduct mortgage interest and real estate taxes and exclude up to $250,000 ($500,000 if married) of the gain on the sale of the home. Ministers of the gospel should take advantage of these provisions so that they can minimize what they must render unto Caesar.

Alan D. Campbell is a CPA in Arkansas and Florida and is self-employed primarily as an author of tax publications. He earned a Ph.D. in accounting with an emphasis in taxation from the University of North Texas. He is also admitted to practice before the United States Tax Court. He has published numerous articles on tax topics in professional journals. He is the co-author of the book Tax Strategies for the Self-Employed and the revision editor of CCH Financial and Estate Planning Guide, 15th edition. For more tax savings strategies, please see his blog: http://taxsavingsstrategies.blogspot.com

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The Mortgage Interest that you paid to acquire your first and second home can be deducted in your income tax. As you read on, you will learn how to deduct and calculate Mortgage Interest for your income tax return. Plus, you will learn how Mortgage Interest works.

How it works

The Lender sends you form 1098. The form 1098 shows how much mortgage interest was paid. Using the values from form 1098, you transfer the values to Schedule A Form 1040 of your income tax form.

Requirements for Tax Deductions

There are three conditions to meet to be able to deduct mortgage interest. First, you must fill out the Schedule A Form 1040. Second, you must be liable for the loan. Basically, the homeowner pays the mortgage payment. And, he owns the home. Lastly, the home must be a secured debt of a qualified home.

Mortgage, Deed of Trust, or Land Contract instrument secures a debt. The instrument provides a way to satisfy debt in case of default, makes the owner liable to pay debt, and records under the local state of law.

Qualified Home means house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. And, the home is first and second home of the homeowner.

Qualified Mortgages

The three categories are Grandfathered Debt, Home Acquisition Debt, and Home Equity Debt. Grandfathered Debt is acquired mortgage prior October 13, 1987. If the Homeowner refinanced the mortgage, the mortgage remains as Grandfathered Debt. Home Acquisition Debt is acquired mortgage after October 13, 1987 to buy, build, or improve a home. The total mortgage must not exceed $1 million. Home Equity Debt is acquired mortgage after October 13, 1987 not to buy, build, or improve a home. The mortgage must not exceed $100,000 of the fair market value.

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.

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