Are you a procrastinator when it comes to getting your taxes done? Do you rush to the post office on the eve of April 15 to get your tax returns postmarked in time to avoid late penalties? If so, you are like many Americans. And if you own your own home, you probably have similar questions about the deductions you can take for your mortgage interest as well as other tax questions related to being a homeowner. If so, here are three things you should know if you still have to get your taxes done this year so you can make sure they get done correctly.
1. In order to claim your mortgage rate as a deduction, you have to itemize deductions on your tax returns. Nearly 40 percent of the homeowners in the United States miss out on taking advantage of the mortgage interest deduction because they do not itemize deductions on their taxes. While the standard deduction may be greater than the mortgage interest deduction, there are many times when homeowners simply take the standard deduction without crunching the numbers on an itemized deduction. The better tax software programs – and the better tax accountants if you are using one - will help you figure out which is greater so you can lower your tax bill or get a greater return, whichever applies to your financial situation.
2. If you are on the brink of a short sale, foreclosure or loan modification, this may be the last year that you can benefit on your taxes. Before 2007, the IRS would charge people taxes on any debt that was either cancelled or reduced. They refer to this as the Cancellation of Debt Income and the term says it all. The IRS typically considers any reduction or cancellation of debt as part of your income. But the Mortgage Debt Forgiveness Relief Act of 2007 suspended the attribution of income for cancelled mortgage debt for troubled homeowners through 2012. If you are debating taking one of these actions for your home, you should start the process now or it may be too late to take advantage of this deduction on your returns (unless the 2007 Mortgage Debt Foregiveness Relief Act or its applicable provisions are extended).
3. Closing costs are also tax deductible. Many homeowners are so focused on deducting their property taxes and their mortgage interest that they forget that they can deduct their closing costs. If you have any origination fees that you paid to your lender last year at closing, you can probably deduct those fees on your tax returns. In many cases, you can even deduct those fees if the closing costs were paid by the seller.
These are just a few of the things to keep in mind when preparing your tax returns this year. Of course, it is always best to check with a qualified CPA or tax return specialist to make sure you get all of the deductions that you are eligible for. But these tips will get you started and give you an idea of what you can do this year to start preparing for next year’s returns.
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