How to Deduct Your Upfront Mortgage Insurance Premiums

By: Dona DeZube

Published: February 15, 2013 on houselogic.com

Finding the right mortgage can be hard which is why it’s important to visit sites like https://www.mortgagesforless.ca/ and find yourself a mortgage that is affordable and fair. However, you can’t always get it right and if you paid a really big upfront mortgage insurance premium at the closing table (we’re talking thousands of dollars), you may be able to recoup some of that cost by deducting your payments on your federal income tax return.

How do you know if you paid upfront mortgage insurance premium? Check the HUD-1 settlement statement you got at closing – the one-page sheet showing what you paid and what the home seller paid when you got your mortgage (be it as a standalone or through a Colorado Springs Mortgage Broker or similar service). If you have:

  • A Veterans Administration or USDA’s Rural Housing-guaranteed loan, the upfront fee will be labeled “funding fee” or “guarantee fee.”
  • An FHA loan, it’ll be listed as “upfront fee.”
  • Private mortgage insurance, an upfront fee is a “single premium,” and it’s likely labeled MIP (mortgage insurance premium).

If you didn’t pay an upfront fee, you likely got a monthly payment policy.

The purpose of any type of mortgage insurance is the same: To protect the lender in case you default on the loan. This is the case whether you went through mortgage broker Red Deer or through another service.

The upside is that it’s a good deal for aspiring home owners. Many people, especially first-time buyers, can’t come up with big down payments. Mortgage insurance encourages lenders to give home loans to those who have the means to pay a mortgage, but lack the hefty down payment. Look here for information about mortgage rates from different mortgage lenders.

Not Everyone Qualifies for the Deduction

If your adjusted gross income (AGI) is no more than $100,000 ($50,000 for married filing separately), and you took out the loan in 2007 or later, then you can take the mortgage insurance deduction as one of your itemized deductions on Schedule A. The mortgage must be for your primary residence or a second home that’s not a rental property.

If your AGI is higher than $109,000 for couples ($54,500 for married filing separately), sorry, you’re out of luck. No deduction for you.

If your income falls between $100,000 and $109,000, your deduction is phased out. Use the worksheet that comes with Schedule A to see how much you can deduct.

Got a VA or Rural Housing Loan? Lucky You!

If your loan was made through the VA or the USDA’s Rural Housing loan program, your upfront payment is completely deductible in the year you pay it.

Put the amount listed on your HUD-1 for guarantee or funding fee right onto your Schedule A.

Deducting Your FHA Upfront and Single Premium Payments

If you have an FHA loan or you bought a single-premium private mortgage insurance policy, you have to do a little math to figure out how much you can deduct.

Start with the amount you paid (or financed into your loan) and divide by whichever time frame is shorter: 84 months (that’s 7 years) or the total number of months of your loan’s life. (We could go into great detail why this formula was chosen, but we figure you probably don’t care. You just want to know how to do it, right?)

Since pretty much everyone has a mortgage term longer than 7 years, you’ll probably use the 84 months.

Here’s an example: Let’s say you bought a house last January and paid $8,400 upfront for mortgage insurance.

$8,400 ÷ 84 = $100

Multiply $100 by the number of monthly mortgage payments you made during the year (for example, 12 if you closed in January, or six if you closed in July).

$100 X 12 = $1,200 or $100 x 6 = $600

Assuming 12 payments, your deduction is $1,200.

Enter that figure on line 13 of Schedule A.

Note: Don’t confuse upfront mortgage insurance premiums with pre-paying your monthly mortgage insurance premiums. If you paid your January 2013 premium in December 2012, that’s a pre-payment. Paying upfront means you paid a whopping premium at closing.

What You Should Know About Your Home and Your 2013 Taxes

By: Dona DeZube

Published: December 12, 2013 on houselogic.com

It’s the last year for three sweet home tax benefits, but the first for a way simpler home office deduction.

These days few things start a fight on Capitol Hill faster than taxes. Despite the fact that three important tax benefits used by millions of American homeowners are days from expiring, Congress is unlikely to do anything to re-up them any time soon.

So if you’re eligible, tax year 2013 is possibly the last time to claim the private mortgage insurance (PMI) deduction, the energy tax credit, and debt forgiveness benefit, all of which all expire on Dec. 31, 2013.

At least there’s one piece of good news for homeowners: If you happen to have a wooden garden house or separate space for a home office, there’s a new, simpler option for calculating the home office deduction for which you may qualify on your 2013 taxes.

Meanwhile, here’s what you need to know about those expiring benefits as you ready your taxes:

PMI Deduction

This tax rule lets you deduct the cost of private mortgage insurance, which is what you pay your lender each month if you put down less than 20% on a home. PMI protects the lender if you default on the home loan. Your deduction could amount to a couple of hundred dollars depending on your tax bracket and other factors. This can change according to your area and type of insurance. Insurance tax deductions are confusing, for example, life insurance money doesn’t always have taxes; you can read more about it here.

Find out if you qualify for and how to take the PMI deduction.

Energy-Efficiency Upgrades

This sweet little tax credit lets you offset what you owe the IRS dollar-for-dollar for up to 10% of the amount you spent on certain home energy-efficiency upgrades, from insulation to water heaters. So maybe it’s time to call your HVAC Company and see what upgrades you can do to make your home more energy efficient! On the downside, the credit is capped at $500 (less in some cases). But on the bright side, the right improvement could lower your utility bills indefinitely. Especially if you need a new air con system like those offered by this air conditioning installation Denver CO company! Those summer months could bring some hefty bills otherwise, as these systems are constantly keeping you cool.

Related: Take back your energy bills with these high-ROI energy-efficiency practices.

Debt Forgiveness

When you go through a short sale, foreclosure, or deed-in-lieu, your lender typically lets you off the hook for some or all of what you owe on your mortgage.

That forgiven mortgage debt is income, on which you’d typically have to pay income tax.

Suppose you’re in financial distress and your lender agrees to let you short-sell your home, say for $50,000 less than you owe on the mortgage, and forgive you for the balance. Without the protection of the Mortgage Debt Forgiveness Act, you’ll owe income tax on that $50,000.

It’s likely if you had the money to pay income tax on $50,000, you’d have used it to pay your mortgage in the first place.

New Simplified Option for the Home Office Deduction

This may be the last year for the benefits above, but a new one kicks in for the 2013 tax year. If you work from home, you may qualify to use a new, simplified option for claiming the home office deduction when you file your 2013 taxes.

How much simpler is it? It lets you claim $5 per sq. ft. for up to 300 sq. ft. instead of having to compute the actual expenses of your home office using a 43-line form. To calculate the square footage of your office, just multiply the length of two walls. For example, an 8-by-10-foot room is 80 sq. ft. And at $5 per, that’s $400.

Although using the simplified option is obviously easier, the basic requirements for claiming the home office deduction haven’t changed. Your home office still must be used for business purposes:

  • Exclusively, and
  • On a regular basis.

Related: Which Home Office Set-Ups Qualify for a Deduction?

Why Might the Tax Benefits Not Be Renewed?

Although the expiring tax benefits were renewed retroactively in past years, that may not happen in 2014 because many in Congress would like to see comprehensive tax reform rather than scattershot renewals of individual provisions. This could delay a decision on the homeownership tax benefits until the big picture budget and tax issues are resolved.

So if you can, enjoy them now!

Don't-Miss Home Tax Breaks

By: Dona DeZube via houselogic.com

Published: January 10, 2013

From the mortgage interest deduction to energy tax credits, here are the tax tips you need to get a jump on your returns.

Mortgage interest deduction
Private mortgage insurance deduction
Prepaid interest deduction
Energy tax credits
Vacation or second home tax deductions
Home buyer tax credit repayment
Property tax deduction

Mortgage interest deduction

One of the neatest deductions itemizing home owners can take advantage of is the mortgage interest deduction, which you claim on Schedule A. To get the mortgage interest deduction, your mortgage must be secured by your home – and your home can even be a house trailer or boat, as long as you can sleep in it, cook in it, and it has a toilet.

Interest you pay on a mortgage of up to $1 million – or $500,000 if you’re married filing separately – is deductible when you use the loan to buy, build, or improve your home.

If you take on another mortgage (including a second mortgage, home equity loan, or home equity line of credit) to improve your home or to buy or build a second home, that counts towards the $1 million limit.

If you use loans secured by your home for other things – like sending your kid to college – you can still deduct the interest on loans up $100,000 ($50,000 for married filing separately) because your home secures the loan.

PMI and FHA mortgage insurance premiums

Helpfully, the government extended the mortgage insurance premium deduction through 2013. You can deduct the cost of private mortgage insurance as mortgage interest on Schedule A – meaning you must itemize your return. The change only applies to loans taken out in 2007 or later.

What’s PMI? If you have a mortgage but didn’t put down a fairly good-sized down payment (usually 20%), the lender requires the mortgage be insured. The premium on that insurance can be deducted, so long as your income is less than $100,000 (or $50,000 for married filing separately).

If your adjusted gross income is more than $100,000, your deduction is reduced by 10% for each $1,000 ($500 in the case of a married individual filing a separate return) that your adjusted gross income exceeds $100,000 ($50,000 in the case of a married individual filing a separate return). So, if you make $110,000 or more, you lose 100% of this deduction (10% x 10 = 100%).

Besides private mortgage insurance, there’s government insurance from FHA, VA, and the Rural Housing Service. Some of those premiums are paid at closing and deducting them is complicated. A tax adviser or tax software program can help you calculate this deduction. Also, the rules vary between the agencies.

Prepaid interest deduction

Prepaid interest (or points) you paid when you took out your mortgage is 100% deductible in the year you paid them along with other mortgage interest.

If you refinance your mortgage and use that money for home improvements, any points you pay are also deductible in the same year.

But if you refinance to get a better rate and term or to use the money for something other than home improvements, such as college tuition, you’ll need to deduct the points over the term of the loan. Say you refi for a 10-year term and pay $3,000 in points. You can deduct $300 per year for 10 years.

So what happens if you refi again down the road?

Example: Three years after your first refi, you refinance again. Using the $3,000 in points scenario above, you’ll have deducted $900 ($300 x 3 years) so far. That leaves $2,400, which you can deduct in full the year you complete your second refi. If you paid points for the new loan, the process starts again; you can deduct the points over the term of the loan.

Home mortgage interest and points are reported on IRS Form 1098. You enter the combined amount on line 10 of Schedule A. If your 1098 form doesn’t indicate the points you paid, you should be able to confirm the amount by consulting your HUD-1 settement sheet. Then you record that amount on line 12 of Schedule A.

Energy tax credits

The energy tax credit of up to a lifetime $500 had expired in 2011. But the Feds extended it for 2012 and 2013. If you upgraded one of the following systems this year, it’s an opportunity for a dollar-for-dollar reduction in your tax liability: If you get the $500 credit, you pay $500 less in taxes.

  • Biomass stoves
  • Heating, ventilation, air conditioning
  • Insulation
  • Roofs (metal and asphalt)
  • Water heaters (non-solar)
  • Windows, doors, and skylights
  • Storm windows and doors

Varying maximums

Some of the eligible products and systems are capped even lower than $500. New windows are capped at $200 – and not per window, but overall. Read about the fine print in order to claim your energy tax credit before calling out that window replacement company.

  • Determine if the system is eligible. Go to Energy Star’s website for detailed descriptions of what’s covered. And talk to your vendor.
  • The product or system must have been installed, not just contracted for, in the tax year you’ll be claiming it.
  • Save system receipts and manufacturer certifications. You’ll need them if the IRS asks for proof.
  • File IRS Form 5695 with the rest of your tax forms.

Vacation home tax deductions

The rules on tax deductions for vacation homes are complicated. Do yourself a favor and keep good records about how and when you use your vacation home. Even if you have a Log Cabin Home, you’ll need to make sure your records are up to date and in order.

  • If you’re the only one using your vacation home (you don’t rent it out for more than 14 days a year), you can deduct mortgage interest and real estate taxes on Schedule A.
  • Rent your vacation home out for more than 14 days on Isle Blue or similar services and use it yourself fewer than 15 days (or 10% of total rental days, whichever is greater), and it’s treated like a rental property. Those expenses get deducted using Schedule E.
  • Rent your home for part of the year and use it yourself for more than 14 days and you have to keep track of income, expenses, and divide them proportionate to how often you used and how often you rented the house.

Home buyer tax credit

There were federal first-time home buyer tax credits in 2008, 2009, and 2010.

  • If you claimed the home buyer tax credit for a purchase made after April 8, 2008, and before Jan. 1, 2009, you must repay 1/15th of the credit over 15 years, with no interest.
  • If you used the tax credit in 2009 or 2010 and then sold your house or stopped using it as your primary residence, within 36 months of the purchase date, you also have to pay back the credit. Example: If you bought a home in 2010 and sold in 2012, you pay it back with your 2012 taxes.
  • That repayment rules are less rigorous for uniformed service members, Foreign Service workers, and intelligence community workers who get sent on extended duty at least 50 miles from their principal residence.

Members of the armed forces who served overseas got an extra year to use the first-time home buyer tax credit. If you were abroad for at least 90 days between Jan. 1, 2009, and April 30, 2010, and you bought your home by April 30, 2011, and closed the deal by June 30, 2011, you can claim your first-time home buyer tax credit.

The IRS has a tool you can use to help figure out what you owe.

Property tax deduction

You can deduct on Schedule A the real estate property taxes you pay. If you have a mortgage with an escrow account, the amount of real estate property taxes you paid shows up on your annual escrow statement. Even if you aren’t eligible for a deduction, it is still important that you pay your property tax and what this can be used for could vary in each state. For example, if you live in Atlanta, then places similar to Atlanta Dream Living, (https://www.atlantadreamliving.com/atlanta-ga-property-taxes) have provided a very detailed guide to inform you of everything you need to know about these taxes and what you can have access to as a result. If you do think you’re eligible for a deduction, then continue reading.

If you bought a house in 2012, check your HUD-1 Settlement statement to see if you paid any property taxes when you closed the purchase of your house. Those taxes are deductible on Schedule A, too.

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

10 Common Errors Home Owners Make When Filing Taxes

Article from Houselogic.com
By: G. M. Filisko
Published: January 25, 2011

Don’t rouse the IRS or pay more taxes than necessary-know the score on each home tax deduction and credit.

Sin #1: Deducting the wrong year for property taxes

You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind-that is, you’re not billed for 2010 property taxes until 2011. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in 2010, no matter what the date is on your tax bill. Dave Hampton, CPA, tax manager at the Cincinnati accounting firm of Burke & Schindler, has seen home owners confuse payments for different years and claim the incorrect amount.

Sin #2: Confusing escrow amount for actual taxes paid

If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed, says Bob Meighan, CPA and vice president at TurboTax in San Diego. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.

For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200. Your lender will send you an official statement listing the actual taxes paid. Use that. Don’t just add up 12 months of escrow property tax payments. If you’re confused about the escrow payments, you could always contact a company dealing with Escrow for Surrogacy Agencies, or your local escrow provider. They will most likely be able to explain the process to you, and ensure you understand how your transactions will work.

Sin #3: Deducting points paid to refinance

Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, says Meighan, you must deduct points over the life of your new loan. If you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $133 per year. Using the tax services offered by Dave Burton can help you overcome errors of this nature.

Sin #4: Failing to deduct private mortgage insurance

Lenders require home buyers with a downpayment of less than 20% to purchase private mortgage insurance (PMI). Avoid the common mistake of forgetting to deduct your PMI payments. However, note the deduction begins to phase out once your adjusted gross income reaches $100,000 and disappears entirely when your AGI surpasses $109,000.

Sin #5: Misjudging the home office tax deduction

This deduction may not be as good as it seems. It often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return. Hampton’s advice: Claim it only if it’s worth those drawbacks, or leave it to the hands of tax experts in dc who will know their way around such judgements. Figures like these may be area-dependant too, so always make sure you get as much information as you can on the local outlook on it. For example, if you need a guide on taxes in New Jersey, you’ll find them here; https://tonewjersey.com/new-jersey-property-taxes – this is purely just an example, but be sure to do plenty of digging online first to find out more.

Sin #6: Missing the first-time home buyer tax credit

If you met the midyear 2010 deadlines, don’t forget to take this tax credit into account when filing.

Even if you missed the 2010 deadlines, you still might be in luck: Congress extended the first-time home buyer credit for military families and other government workers on assignment outside the United States. If you meet the criteria, you have until June 30, 2011, to close on your first home and qualify for the tax credit of up to $8,000.

Sin #7: Failing to track home-related expenses

If the IRS comes a-knockin’, don’t be scrambling to compile your records. Many people forget to track home office and home maintenance and repair expenses, says Meighan. File away documents as you go. For example, save each manufacturer’s certification statement for energy tax credits, insurance company statements for PMI, and lender or government statements to confirm property taxes paid. Additionally, knowing what documents count is also important. If you get confused at any time, you can always consult with H&H Accountants for expert knowledge in tax registration.

Sin #8: Forgetting to keep track of capital gains

If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. However, you can exclude $250,000 (or $500,000 if you’re a married couple) of any profits from taxes. So if you bought a home for $100,000 and sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains. However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523.

Sin #9: Filing incorrectly for energy tax credits

If you made any eligible improvement, fill out Form 5695. Part I, which covers the 30%/$1,500 credit for such items as insulation and windows, is fairly straightforward. But Part II, which covers the 30%/no-limit items such as geothermal heat pumps, can be incredibly complex and involves crosschecking with half a dozen other IRS forms. Read the instructions carefully.

Sin #10: Claiming too much for the mortgage interest tax deduction

You can deduct mortgage interest only up to $1 million of mortgage debt, says Meighan. If you have $1.2 million in mortgage debt, for example, deduct only the mortgage interest attributable to the first $1 million.

Ultimately, as far as running a business from home is concerned, there are a wide selection of business accounting home office solutions out there to make your bookkeeping more simple. For more information and support, go to www.lutz.us/accounting/.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.

G.M. Filisko is an attorney and award-winning writer who was once mortified to receive a letter from the IRS-but relieved to learn the IRS had simply found a math error in her favor. A frequent contributor to many national publications including AARP.org, Bankrate.com, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Schedule A Form: 6 Home Deduction Traps

Article From HouseLogic.com
By: Barbara Eisner Bayer
Published: January 27, 2011

Get an “A” on your Schedule A Form: Dodge these tax deduction pitfalls to save time, money, and an IRS investigation.

Schedule A (http://www.irs.gov/pub/irs-pdf/f1040sa.pdf) is the part of Form 1040 you use to list myriad deductions, and the more moving parts, the more prone you are to misinterpretation. To save you heartache, we asked four tax experts to weigh in on the six most common Schedule A mistakes do-it-yourselfers make.

Trap #1: Line 6 – real estate taxes

Your monthly mortgage payment often includes money for a tax escrow, from which the lender pays your local real estate taxes.

The money you send the bank may be more than what the bank pays for your taxes, says Julian Block, a tax attorney and author of Julian Block’s Home Seller’s Guide to Tax Savings. That will lead you to putting the wrong number on Schedule A.

Example:

  • Your monthly payment to the lender: $2,000 for mortgage + $500 escrow for taxes
  • Your annual property tax bill: $5,500

Now do the math:

  • Your bank received $6,000 for real estate taxes, but only paid $5,500. It may keep the extra $500 to apply to the next tax bill or refund it to you at some point, but meanwhile, you’re making a mistake if you enter $6,000 on Schedule A.
  • Instead, take the number from Form 1098—which your bank sends you each year—that shows the actual taxes paid.

Trap #2: Line 6 – tax calculations for recent buyers and sellers

If you bought or sold a home in the middle of 2010, figuring out what to put on line 6 of your Schedule A Form is tricky.

Don’t simply enter the number from your property tax bill on line 6 as you would if you owned the house the whole year. If you bought or sold a house in midyear, you should instead use the property tax amount listed on your HUD-1 closing statement, says Phil Marti, a retired IRS official.

Here’s why: Generally, depending on the local tax cycle, either the seller gives the buyer money to pay the taxes when they come due or, if the seller has already paid taxes, the buyer reimburses the seller at closing. Those taxes are deductible that year, but won’t be reflected on your property tax bill.

Trap #3: Line 10 – properly deducting points

You can deduct points paid on a refinance, but not all at once, says David Sands, a CPA with Buchbinder Tunick & Co LLP. Rather, you deduct them over the life of your loan. So if you paid $1,000 in points for a 10-year refinance, you’re entitled to deduct only $100 per year on your Schedule A Form.

Trap #4: Line 10 – HELOC limits

If you took out a home equity line of credit (HELOC), you can generally deduct the interest on it only up to $100,000 of debt each year, says Matthew Lender, a CPA with EisnerLubin LLP.

For example, if you have a HELOC for $200,000, the bank will send you Form 1098 for interest paid on $200,000. But you can deduct only the interest paid on $100,000. If you just pull the number off Form 1098, you’ll deduct more than you’re entitled to.

Trap #5: line 13 – Private mortgage insurance

You can deduct PMI on your Schedule A Form, as long as you started paying the insurance after Dec. 31, 2006. (Also, this is also a good time to review your PMI: You might be able to cancel your PMI altogether because you’ve had a change in loan-to-value status.)

Trap #6: line 20 – casualty and theft losses

You can deduct part or all of losses caused by theft, vandalism, fire, or similar causes, as well as corrosive drywall, but the process isn’t always obvious or simple:

  • Only deduct losses that are greater than 10% of your adjusted gross income (line 38 of Form 1040).
  • Fill out Form 4684, which involves complex calculations for the cost basis and fair market value.  This form gives you the number you need for line 20.

Bottom line on line 20: If you’ve got extensive losses, it’s best to consult a tax pro. “I wouldn’t do it myself, and I’ve been dealing with taxes for 40 years,” says former IRS official Marti.

Barbara Eisner Bayer has written about personal finance for the past 17 years. She works hard to translate IRSese into plain English. She has unbounded respect for CPAs.

Tax Deadline Extended! But What If You Need More Time?

This year, instead of your tax filing being due on Friday, April 15, you’ll have a few extra days to complete and file your taxes. That means your tax filing isn’t due until Monday, April 18, 2011.

The three extra days have been added because of Emancipation Day, which is a little-known Washington, D.C. holiday that celebrates the freeing of slaves in the district. The holiday actually falls on Saturday, April 16 this year, but will officially be observed on Friday, April 15. As a result, the IRS pushed the filing deadline to Monday, April 18 – since the tax code states that filing deadlines can’t fall on Saturdays, Sundays or holidays.

Still Need More Time?

If you need more time to file your taxes, you can submit Form 4868 for a six-month extension. You can learn more about extensions on the IRS website.

Problems Paying?

But what do you do if you’ve completed your tax returns only to find out that you owe way more to Uncle Sam than you were expecting – or worse, that your tax bill is more than you can possibly afford to pay right now? Don’t worry. If this is the case, you’re not alone, especially in today’s economy. And, more importantly, you’re not going to jail just for being a little short on cash.

Rest assured, the IRS only seeks criminal charges for those who the agency can prove intentionally chose not to file and pay taxes. So, even if you can’t pay your bill right away, file your return on time, and not only will you stay off the IRS’s bad side, you’ll avoid some hefty financial penalties in the process. You may even find that you could qualify for an IRS Debt Settlement, though this is worth discussing with a financial advisor. It can be hard for people to stay in control of their taxes, especially if they lead very busy lives. That’s why Canadian residents are able to register into the CRA voluntary disclosure program to offer them with that extra little bit of help that they need to get their taxes repaid as quickly as they can. A similar sort of program or help will be offered to people who live in different areas though.

If you happen to earn a substantial amount every year, you are eligible for the tax deductions. Many people are oblivious to this and would end up paying a hefty amount to the IRS every year. Seeking the services of an accounting consultant would be a prudent option in such circumstances. They can help you sort out your taxes and also file them for you.

Penalties and Interest Charges

According to the IRS, the penalty for filing late is generally 5% per month, or up to 25% of the total tax amount due. Not to mention interest charges, which the IRS changes quarterly, and which range between 4% and 9%. This interest applies to the unpaid balance, penalties, and to any interest that has been charged to the account as well.

If no effort is made to pay back-taxes, the IRS can impose stricter penalties, including levying bank accounts, wages, other income, or taking other assets like houses and cars. A Federal Tax Lien could also be filed, which could ruin your credit history for years to come.

The penalty for filing on time but paying late, however, is much lower. If you choose an installment plan to pay your debt, interest will accrue on the unpaid debt amount only. Therefore, when you file your return, pay as much as you can to help cut down the penalties. An alternative option would be to reaching out to a firm that offers tax resolution services. They can work with the IRS and find practical solutions for your tax payments.

Delayed Collection

If you absolutely cannot pay any part of your tax bill, the IRS may temporarily delay collection until your financial situation improves, although interest and penalties will accrue throughout this time. But this extension is reserved for what the IRS calls “significant hardship.” Your best bet is to talk to a CPA or tax professional if you cannot pay any part of your tax bill.

Whatever you do, DON’T just ignore the bill and assume the government will forget about it. Assess the situation, seek help from a tax professional, and make a plan to address the situation.

Stuart Brown, Sr. Loan Officer Team Leader

The Valley Mortgage Group
Cell: 503-538-1072
Fax: 503-538-6682
stuart@wvbk.com
wvbk.com/stuartbrown

Mortgage Interest and Real Estate Tax Deduction Facts

Note: At the risk of boring you with another post about mortgage interest deductions, this is such an important issue that I wanted to post these specific facts to help state the case for how vital the deduction is to homeowners and those pursuing homeownership.

December 7, 2010
By Danielle Hale, Research Economist

In recent weeks, many proposals, suggesting a variety of changes to the tax system, have been discussed. The estimates below are for the complete elimination of these two tax benefits at current marginal tax rates, one of the most extreme possible changes.

Mortgage Interest Deduction Facts:

• 51 million—or 68 percent—of the approximately 75 million owner-occupied houses in the United States in 2009 had a mortgage.
• 38.5 million taxpayers claimed a deduction for mortgage interest, deducting a total of $470 billion, in 2008.
• The average taxpayer claiming the MID deducted $12,200 from taxable income in 2008.
• Therefore, the average taxpayer saved $3,050 in taxes by claiming the mortgage interest deduction1 .
• The total tax savings from the MID in the United States in 2008 was $117 billion.

Real Estate Tax Deductions Facts:

• 42 million taxpayers in the United States claimed a deduction for real estate taxes in 2008, deducting a total of $172 billion.
• The average taxpayer claiming the real estate tax deduction subtracted $4,090 from taxable income in 2008.
• Therefore the average taxpayer saved $1,020 in taxes as a result of the real estate tax deduction2 .
• The total savings from the real estate tax deduction in the United States in 2008 was $43 billion.

Eliminating Deductions: Losses for Home Owners and the Nation

If the mortgage interest and real estate tax deductions were eliminated, the loss would not be a one-year event; homeowners lose out on these potential savings each and every year. The present value3 of these lost savings could total $3.2 trillion. The value of all owner-occupied real estate in the United States in 2009 was $19.3 trillion4 . If the lost tax savings are fully capitalized into the price of houses, the average decline in value in the United States would be 17 percent. From the individual perspective, the median priced home in the United States in the third quarter 2010 was $177,800. A decline in value of 17 percent, as projected, would mean a loss in home value of $29,500 for the typical home owner.

These estimates, because they are based on a complete elimination of these deductions, can be viewed as a high-end estimate. Other changes will result in smaller losses to home owners. Additionally, national results are computed by looking at national averages. A very different picture can result when looking at the state level depending on the characteristics of the housing market, tax payers, and homeowners. For state information, contact data@realtors.org.

1Marginal rates range from 10 to 35 percent. A 25 percent rate was used to calculate the tax savings.
2Ibid.
3Present value calculation assumes 5 percent discount rate and 1000 year time horizon.
4As measured by the American Community Survey. The Federal Reserve Flow of Funds for 2009 estimated the market value of household real estate to be $17 trillion which would raise the estimate of the decline in value to 19 percent.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

©2010 NATIONAL ASSOCIATION OF REALTORS®. All rights reserved.

Energy Tax Credits – It’s Not Too Late

You can receive a tax credit of 30% of the purchase price of qualified energy-efficient products, up to a maximum tax credit of $1,500. According the the IRS, “To qualify, a component must meet or exceed the criteria established by the 2000 International Energy Conservation Code (including supplements) and must be installed in the taxpayer’s main home in the United States.” The $1,500 maximum applies to to the total amount of credits claimed for the years 2009 and 2010 combined. That means your tax credits for energy-efficient improvements cannot exceed a total of $1,500 over both 2009 and 2010.

Improvements Restricted to ‘Main Home’
The tax credit for nonbusiness energy property is restricted to improvements to and appliances installed at a primary residence. Improvements made on rental homes, second homes, or vacation property are not eligible for this tax credit.

Examples of home improvements that could qualify as tax credits:

  • Exterior doors and windows
  • Storm windows
  • Skylights
  • Metal roofs
  • Insulation
  • Central air conditioning and heating
  • Geothermal heat pumps
  • Hot water boilers
  • Advanced main air circulating fans
  • Biomass fuel stoves with a thermal efficiency rating of 75% or more
  • Asphalt roofs with cooling granules

 

Published on: Nov 18, 2010