Tax News and Advice

Written by
Dan Rafter Read Time: 11 minutes

Important tax news related to your mortgage loan - Read what deductions you are allowed to take.

Choosing a Tax Debt Relief Specialist

Submitted on December 8, 2006

More than two centuries ago, Ben Franklin observed that life's only certainties are death and taxes. In today's world, where tax evasion can lead to the imprisonment of entertainers and the seizing of homes, the Founding Father's words still ring true. If you have a tax debt, now is the time to address it.

Trying to navigate your way out of a tax jam is like wandering through the forest without a compass. If you're deep into the bush of back tax debt, it may be crucial to enlist the help of a guide to get you out. In the tax world, guides are known as Tax Debt Relief Specialists.

Tax Debt Relief Specialists can be tax attorneys, debt advisors, CPAs or Enrolled Agents (EAs)-IRS- certified tax professionals. Any professional offering tax debt help services should have specific tax education and experience. Specialized experience is particularly important. The right expert can guide you by assessing your situation, devising an appropriate solution, and representing you before the IRS.

Finding help

The following discussion points will help you select the right professional.

- Free Consultation. Meeting with several professionals who offer free consultations gives you the opportunity to compare your options without laying out any cash.

- Experience. The more experience the professional has with back tax cases, the better. Many tax professionals will promote themselves as the most experienced in the field. Since this is a subjective claim, ask him to be specific, and then rely on your own judgment in evaluating his past successes.

- Fees. A stated flat fee (as opposed to hourly billing) eliminates surprises, as long as you know what is and what isn't included in the fee. Ask about all services that might be necessary in your case, and whether these are included. Some professionals may offer payment plans, and some may base the fee on performance alone.

Expectations. Tax debt solution advertising may paint an unrealistically rosy picture. Ask your candidate directly what type of resolution you can expect. Statistically speaking, most back tax cases are settled with payment plans, rather than debt write-offs.

A reputable and experienced tax debt relief specialist can lead you out of the forest. You may have to walk through a bit of poison ivy, but it's better than wrestling with an ornery grizzly bear named Uncle Sam.

Year-end Mortgage Tax Tips

Submitted on January 16, 2007

Get your mortgage ducks in a row now, so that you can enjoy those juicy mortgage-related tax deductions in the spring. January is the time for making resolutions for the new year. It's also a good time to gather your financial information to make sure that you've got everything organized when it's time to pay the taxman in the spring.

The basics

Whether you've done a mortgage refinance, or taken a second mortgage, your lender should send you a Form 1098 annually, which includes the amount of mortgage interest that you paid during the year. In most cases, that amount is tax-deductible. You'll need to file an itemized Schedule A, but the savings will be well worth it.

You should also receive an annual escrow statement, indicating how much of your mortgage payments were used to cover expenses like homeowner's insurance and real estate taxes. If this doesn't land in your mailbox in a timely manner, call your lender and ask for this information. It's important-real estate taxes are fully deductible. Interest and taxes paid through your mortgage can add up to substantial tax savings.

More deductions, please

If you have a second mortgage on your property, such as a home equity loan or a home equity line of credit (HELOC), much of the interest paid on those loans is deductible. Every dollar used to finance home improvement projects up to $100,000 reduces your taxable income dollar for dollar.

Loan points and seller concessions-basically points paid by your lender-are deductible, as well, though you'll need to divide your point deductions by the length of your mortgage term in years. For example, a borrower with a 30-year mortgage loan gets to deduct 1/30 of the paid points every year, until the loan is paid off or refinanced.

Refinancing tax breaks

Refinancing a loan with prepaid points presents a tax break that many homeowners don't know about. When you refinance mortgage, you may deduct the entire balance of the remaining points, and start counting years anew based on the points included in your refinanced loan. If you refinance a 30-year mortgage after four years, that's 26 years' worth of points deductions you can take all at once.

So, put down the eggnog for a second and gather up your mortgage statements and tax forms. After all, nothing's merrier than saving a whole lot of money at Uncle Sam's expense.

IRS May Wrongly Seek Tax Credit Repayment

Submitted on September 10, 2010

Nearly 60,000 individuals who purchased homes in 2009 could get a notice from the IRS improperly demanding that they repay their homebuyer tax credit, according to the Treasury Department.

An audit by the Treasury Inspector General for Tax Administration found that the IRS erroneously recorded their home sales as taking place in 2008 or failed to record the date at all. As a result, they could get a notice informing them they need to begin repaying the credit over the next 15 years.The mix-up is a result of the various rules Congress passed in enacting, modifying and extending the tax credit.

As originally enacted in 2008, first-time homebuyers were entitled to a tax credit of up to $7,500 in the form of an interest-free loan, to be repaid over the next 15 years.In March 2009, Congress raised the tax credit to $8,000 and eliminated the requirement that it be repaid, provided the property remains the buyer's principal residence for three years. However, it made the rule retroactive only to Jan. 1, 2009 - meaning that those who bought in 2008 still had to repay the credit.; Nearly 1.8 million first-time homebuyers received the tax credit in calendar year 2009, according to the IRS. Of those, nearly 296,000 bought their homes in 2009; the law allowed some homeowners who bought their homes in 2009 to file for the credit on their 2008 return.

The inspector general's audit found that 60,000 of those, the IRS improperly recorded their purchases as taking place in 2008 or failing to record a date at all, meaning they could receive a letter improperly demanding that they begin repaying the credit.

Another 515,000 submitted amended tax returns on which the purchase dates were not recorded by IRS computers and therefore could not be verified. Approximately 960,000 credits were claimed by homeowners who did purchase their homes in 2008 and need to begin repaying the credit this year.

The IRS is taking steps to identify homebuyers whose purchases were improperly recorded and correct the problem.

Filers Can't Deduct Mortgage Yet

Submitted on January 21, 2011

No one likes paying taxes, but if you're a homeowner who's eager to file your return, you're going to have to wait a few more weeks.

Because of tax law changes enacted in December, the IRS will not begin accepting returns from taxpayers claiming the mortgage interest deduction or other Schedule A itemized deductions until Feb. 14. The agency says the delay is due to the need to update its computer systems to handle the changes.

In addition to mortgage interest, the delay affects those taking deductions for medical expenses, charitable deductions and state and local taxes, all of which are taken through Schedule A. The delay also affects taxpayers taking deductions for higher education tuition and fees, which is claimed on Form 8917, and the Educator Expense Deduction, which is claimed on Form 1040 or 1040a.

Homeowners taking deductions may still prepare their taxes, but just may not file until Feb. 14. Many types of automated tax preparation software will automatically delay filing until the deadline; filers should check their software or consult with their tax preparer to verify they will do so.

The IRS says that about 9 million taxpayers filed returns taking these deductions prior to Feb. 14 last year.

Returns taking other deductions not listed above, including those claiming the Earned Income Tax Credit (EITC), education tax credits, child tax credit and other tax breaks, can be filed immediately.

Three provisions affecting the deductions named above expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act that was signed into law by President Obama on Dec. 17. The law also creates various other tax deductions for 2011 and beyond that have no effect on the 2010 tax season.

Taxpayers are also getting a three-day extension in the deadline for filing their federal returns this year, thanks to holiday observed in the District of Columbia. Emancipation Day falls on Friday, April 15, so the filing deadline for federal tax returns has been moved back to Monday, April 18. However, state tax returns are still due on Friday, April 15.

Mortgage Interest Tax Deduction Explained

Submitted on February 23, 2011

With tax season coming up in just two months, learn exactly what the mortgage interest tax deduction is and why it benefits you.

If you've ever asked your accountant what more you could be doing during the year to lower your taxes, he or she has probably suggested that you should buy a house.

But what exactly does that mean? On what planet does buying a house make anything cheaper?

Obviously, plunking down the money for a down payment on a home isn't going to save you any money. But that's not where the taxes that you pay on your income come into play anyway.

What your accountant is talking about is reducing the amount that you pay for your taxes. How do you do that? A simplified explanation of taxes is that they are determined based on the amount that you make in a given year. To reduce your taxes, you need to reduce the amount of your income that can be taxed, otherwise known as taxable income.

What the home mortgage interest deduction does is allow you to reduce your taxable income by the total amount of interest that you have paid on your mortgage.

There are, however, some limitations. First, to get the deduction, the taxpayer must elect to itemize deductions and the deductions must exceed the standard deduction. Secondly, the deduction only applies to a primary residence or a second home (no third or fourth homes, should you be so lucky!) up to $1 million dollars of debt.

The general idea behind the deduction is that it encourages people to own homes and frees up more money for them to spend on a home than they would have if they were renting. And it goes without saying that putting your money towards a mortgage every month and building equity is almost always better than throwing it away on rent. So, when you accountant suggests that it is in your best interest to buy a home, he or she has a point!

No More Mortgage Insurance Deduction

Submitted on January 16, 2012

A key tax deduction for recent home buyers expired on Jan. 1, as Congress declined to extend the write-off for various types of mortgage insurance.

The change affects anyone who bought a home or refinanced a mortgage since 2007 with less than a 20 percent down payment or equity in their existing home. Homeowners who took obtained their current mortgage prior to 2007 were not eligible for the deduction.

The change affects borrowers with private mortgage insurance (PMI), common on Fannie Mae and Freddie Mac-backed loans, as well as those with FHA, VA and USDA loans. The government-backed loans have their own insurance charges instead of PMI.

Eliminates deduction for annual and upfront premiums

For PMI, the annual fee is equal to about one-half of one percent of the mortgage amount, or about $1,000 on a $200,000 loan. For a homeowner in the 25 percent tax bracket, that would produce a tax savings of $250.

Annual insurance premiums on FHA mortgages range from 0.25 percent to 1.15 percent of the loan amount, depending on the down payment/equity amount and the length of the loan. There is also a 1 percent upfront insurance premium charged at the time of the loan, which is no longer deductible as of Jan. 1.

The VA does not charge an annual insurance premium but does have an upfront insurance fee of up to 1.65 percent of the loan amount. That was deductible for home loans taken out before Jan. 1 but with the expiration of the law may not be taken on VA mortgages obtained in 2012.

Similarly, the 0.3 percent annual fee on USDA home loans is no longer deductible in 2012, and the 2 percent upfront fee is not deductible for mortgages taken out after the first of the year.

It is possible that Congress might still revive the deduction during its current term, but prospects for that are uncertain. The deduction expired along with 58 other consumer tax deductions that were up for renewal but Congress did not extend, including those for state and local taxes, and energy efficiency improvements and homes.