And the lovely tax break tunes continue. Today's entry from our 12 Tax Tips of Christmas focuses on your residence. Making some home-related payments now can help cut your tax bill when you file next year.
Homeowners know just how valuable their monthly loan payments are at tax time. For those of us early in our mortgage paying life, most of that check goes each month to cover interest. And that interest is deductible when you itemize expenses on Schedule A.
If you have a second home, the interest on that property's mortgage loan also is deductible as long as you live it yourself the IRS-required amount of time: the greater of 14 days or 10 percent of the number of days it's rented to others at a fair price.
You also get some latitude on what the IRS considers a home. Your residence or vacation home can be a house, co-op, condominium, mobile home, trailer, or even a houseboat. For trailers and houseboats, one requirement is that the home must have sleeping, cooking and bathroom facilities.
Just make sure that the total loans you got to buy both your main residence and your vacation home don't exceed $1 million. Home equity loans associated with the properties also can't exceed $100,000.
In all these cases, make the January mortgage payments by
Every time I mention this tax technique, someone drops me a note to point out that prepaid interest is not deductible. But this isn't a prepaid interest incidence.
Unlike rent money, which is paid in advance, your mortgage payment that's due the first of each month is for the previous month's occupancy. So the Jan. 1 payment covers your December time in your house. That means you're paying this month's interest in arrears, not prepaying it.
Property taxes, too: Even if you've paid off all your mortgages on all your properties (lucky you!), you'll still owe property taxes.
In this case you can deduct those real estate taxes on all your properties, not just your first and second homes.
And if you pay those tax bills by Dec. 31, those amounts also can be included on your Schedule A.
If you claim the standard deduction, you still can get some property tax relief when you file.
Simply add up to $500 of your property tax payment ($1,000 if you're married filing jointly) to your standard deduction amount. The IRS will ask for the details on the new Schedule L.Related posts:
- The 12 Tax Tips of Christmas: #1 Sell Assets
- The 12 Tax Tips of Christmas: #2 Improve Your Home
- The 12 Tax Tips of Christmas: #3 Spend Your FSA
- The 12 Tax Tips of Christmas: #4 Be Charitable
- The 12 Tax Tips of Christmas: #5 Do a Mock Return
- The 12 Tax Tips of Christmas: #6 Watch Out for AMT Issues
- The 12 Tax Tips of Christmas: #7 Defer Income
- Vacation home tax breaks
- Home Sweet Second Home (austinwoman magazine)
Want to tell your friends about this blog post? Click the Tweet This or Digg This buttons below or use the Share This icon to spread the word via e-mail, Facebook and other popular applications. Thanks!