Tax season is officially upon us and before it gets too close to the filing deadline, we wanted to provide some basic information about tax deductions as they apply to mortgage holders. The information we are providing below is for your benefit when preparing your taxes for 2010. Of course, every individual situation varies and we recommend speaking with a tax professional if you have any specific questions.
BASIC DEDUCTIONS FOR MORTGAGE HOLDERS
Mortgage Interest is an important tax deduction for many homeowners. In fact, it is one of the key advantages to owning a home versus renting. In general, the interest you pay on the mortgage for your primary residence is deductable from the income you report in your Federal Income Tax filing. In many cases, the mortgage interest from a second home may also be deducted. There are limitations to the amount of interest that can be deducted as well as other important considerations for those who wish to utilize this deduction. For more information, please see IRS publication 936, which you can access by clicking here.
Points Paid When Obtaining a Mortgage can be deducted, when certain qualifications are met. Points are certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. They might also be called “loan origination fees, maximum loan charges, loan discount, or discount points. You generally cannot deduct the full amount of points in the year paid. Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. For all the details about deducting points from your taxable income, please click here to see IRS publication 936.
Interest on Home Equity Loans may also qualify as a tax deduction. Specific requirements exist for individual homeowners and the amount of the deduction is limited. Please see the official rules for this deduction in IRS Publication 936, by clicking here.
Mortgage Insurance Premiums are generally tax deductable. Mortgage insurance is paid by borrowers of certain mortgage loans as was stipulated at the time of purchase. Some rules and limitations apply, so those who paid Mortgage Insurance in 2010 should click here for the details outlined in IRS publication 936.
FEDERAL HOUSING TAX CREDIT
If you took the Federal Housing Tax Credit in 2010, it is important to note that you may not file electronically. Certain required documentation must be sent to the IRS with your return in order to receive the credit, so they are not accepting tax returns electronically.
According to the www.irs.gov website, those claiming the first time homebuyer credit for a purchase in 2010 must follow the guidelines below:
- You must use Form 1040 to claim the credit (reported on line 67 of the 2009 return).
- You cannot use Form 1040-EZ or 1040-A.
- If you have already filed your tax return, you can amend it using Form 1040-X.
- You must attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit.
- You must attach documentation showing the purchase of a home between the applicable dates. To do so, you must attach a copy of your settlement statement. For most homebuyers, this will be a properly executed Form HUD-1, Settlement Statement (U.S. Department of Housing and Urban Development) that includes:
- Names and signatures (if available) of all parties involved,
- Property address,
- Purchase price, and
- Date of purchase.
- You must file a paper, not electronic, return.
- Don’t forget to attach your regular wage and tax statement, Form W-2, W-2G or 1099-R, or enclose your 1040-V payment voucher, as applicable.
If you are a long-time resident of the same main home and you buy a new home, the law may allow you to claim the homebuyer credit. To qualify, you must have lived in the same main home for at least a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. You can avoid refund delays by attaching documentation, such as the following, covering the five-consecutive-year period:
- Forms 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
- Property tax records, or
- Homeowner’s insurance records.
Please click here for more information regarding the Federal Housing Tax Credit from the IRS.
If you took the First-Time Homebuyer Tax Credit in 2008, you must begin repaying the credit starting with your 2010 tax return. According to the www.irs.gov website:
Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally begin repaying it on the 2010 return. In most cases, the credit must be repaid over a 15-year period. Many of those affected by this requirement received reminder letters from the IRS.
A repayment requirement also applies to a taxpayer who claimed the credit on either their 2008 or 2009 return and then sold it or stopped using the home as their main home in 2010. Use Form 5405 to report the repayment.
Click here for more information from the IRS website.
DEADLINE FOR FILING CHANGED
The deadline for filing your 2010 Federal Income Tax Return has been changed to Monday, April 18, 2011.
The date has changed due to a holiday recognized in the District of Columbia on Friday, April 15, 2011 celebrating Emancipation Day. According to the www.irs.gov website, by law holidays in the District of Columbia impact tax deadlines the same way federal holidays do. The new deadline applies to filing your return, requesting a tax-filing extension, and for making 2010 IRA contributions.
For the official IRS statement on the change to the filing date, please click here.
On a separate but related topic, requests Homestead Exemptions are due TOMORROW, FEBRUARY 1st, 2011. Anyone who has not previously filed for a homestead exemption may complete the appropriate forms and submit them for partial relief from their property tax burden in the State of Texas.
For more information, please see the State of Texas webpage regarding Homestead Exemptions by clicking here.