Primary marketInterest Tips for 2002
Santa Claus may make two trips to your house this year. One for being nice, the other for providing you with additional tax deductions you may not be aware of. Who would have thought?
First let me say that I am in no way telling you what you can and cannot deduct for your 2002 income taxes. That’s for you or your professional Tax Preparer to decide. But there are things that you may deduct from your taxes that have a definite “mortgage” feel to them. Being a mortgage person, allow me to remind you of a few items that can sometimes be missed. There are others, as listed in the IRS guide number 530, but for now here are some for you to enjoy.
“Points” or “Discount Points” may be deducted from your taxes this year as are Origination Fees. There are some limitations but generally these fees can be used to reduce your tax liability. If you bought a home last year, you may write off the entire amount of points or origination fees paid on your homestead. If you refinanced and paid points or origination fees, you may only deduct those fees over the term of your newly-refinanced home loan.
For instance, if you refinanced into a 30-year $100,000 mortgage and paid a 1% origination fee, you may be entitled to deduct 1/30th of the $1,000 this year. About $33.00. And each year after that until the loan is retired, when you may deduct the remaining balance of the original charge. Did you refinance an earlier refinance? If you did, here’s a little known tax deduction:
Remember that points or origination fees are deductible over the life of the loan, right? But if you refinanced a mortgage a year or two ago and paid either points or origination fees then that entire remaining balance of those fees may be tax deductible when you refinance again. In this example, instead of deducting $33.00 the remaining $967 can be deducted because the life of the loan took an early retirement. You refinanced into a new loan. Ending
There’s another oft overlooked deduction: prepayment penalties. Some mortgage loans contain prepayment penalties for any variety of reasons. Let’s say that a couple who had a mortgage loan with a prepayment penalty clause said “if you pay off the mortgage early, then you’ll owe an additional six months of mortgage interest” (a common penalty amount). On a $100,000 30-year note an a 7.00% rate, six months of mortgage interest comes to around $3,600. Prepayment penalties can be considered as prepaid mortgage interest and may be tax deductible. Now, instead of a penalty, this couple has a nice little tax deduction that can make that penalty a little easier to swallow.
As I said, there are numerous deductions that can apply to home mortgages and for specific advice for your situation you can begin by logging onto and downloading IRS Publication 530. Sometimes there can be so many deductions that some can be overlooked. Don’t let that be you.