Pure Adrenaline

iTrader: (2)

This is my first full year of homeownership. So naturally I have great interest in the tax benefits.

I was told by many that the interest portion of the mortgage payments is tax-deductible. In other words, I was told that I would get 1/3 of it back.

I just ran a forecast on my '09 return and it wasn't entirely true. Sure, the tax return amount went up by a bit compared to the previous years, but not by 1/3 of my mortgage interest payments.

So am I correct in saying that the 1/3 back is not in addition to what I'm usually refunded (based on standard deduction) but rather, it is the new standard (itemized deduction)?



In other words, if I used to get $2,000 back each year, and I paid $10,000 in interest this year, I'm not necessarily getting back $2,000 + $3,333.



Correct? Or is the simple forecaster... too simple and didn't calculate it correctly?

moeronn

You are correct. Your itemized deductions replace your standard deduction. You do not get an additional ~33% on top of your standard deduction. It is one or the other. Of course, there are other deductions you get to claim, including your personal exemption, that will add to your interest deduction, so it will be more than just the $3,333.

Note: I am not a tax expert, so be sure to verify anything I said here.

sr4dt

<- Prepares his own tax return
<- Not a homeowner yet. So has not researched all the regulations.


The idea is you "could" save taxes on Mortgagee Interest and other deductible expenses by including them in your deduction and that would come off your high end of your tax bracket. Now how much you save would depend on how much itemized deductible you had w/o the homeownership item.

For example if you had a standard deduction of 10,700 but you had itemized deduction of about 8500 (Taxes, medical, charitable donation etc) then out of the $10,000 home related deductible you get "additional" tax benefit on only $7,800 (10,000 - (10,700-8500)). However if you had only say 2500 itemized deduction outside of the homeownership cost then your taxable amount would get reduced by for an additional $1,800 (10,000- (10,700 - 2,500).

So depending on which case above and assuming you are into 33% tax braket you would be gaining either 25% or 6% of the qualified $10K expense in tax savings. However AFAIK you can include your Mortgagee interest (say $10K) plus you takes (say 4K) and other qualified expenses from the closing to bring that figure up a little bit. Also if you did any reno or upgraded to energy efficient appliances then you may have some tax rebates coming your way too.

BostonBob

Remember, when you itemize your deductions, you have the potential to deduct a great deal more than the std deduction. I am no expert either - but off the top of my head you can deduct : mortgage interest, property taxes, local taxes (if applicable) and auto excise taxes. Everyone's situation is different, but I would image the majority of homeowners will benefit from itemized deductions vs. the standard. Congratulations on the new home and good luck with your taxes!

jupitersolo

Don't forget you get claim property taxes as well, if well pay them.

You also can't really look at what you get back, it's what you pay. I use Turbo tax and every year the tally has me owing more money than I paid during the year. Then I enter my house taxes and interest paid, I go from minus to + 3k-4k.

Pure Adrenaline

iTrader: (2)

Thanks for the info, guys!


jupiter - I don't claim much throughout the year, so I'm always owed when I file my taxes, anyway. Being able to deduct the mortgage interest gave it a decent jump on that amount. I didn't know the property taxes were deductible, as well! I'm glad you guys told me that. Although property taxes are pretty cheap down here, money is money.


This is what I used to do a quick estimate. It's pretty nifty, although I don't know how accurate it is. But it's TurboTax, so I'm guessing it should be prety reliable.

http://turbotax.intuit.com/tax-tools...ster/index.jsp


sr4dt - I closed in October of 2008, but I'm going to ask my accountant if that can be applied to my 2009 return. Closing costs, as everybody knows, are quite expensive and it would be nice to be able to deduct them.

This is looking pretty good so far. I'll get a few more bucks back than normal due to the house.

moeronn

^^ The only part of closing costs you can deduct are the action points you paid on the loan. You cannot deduct processing fees, title insurance, or anything else. They should have been deducted on your 2008 returns, though.