A
little year-end attention to your mortgage could lower your upcoming Internal
Revenue Service bill.
Unlike rent, which you pay
beforehand (i.e., your Jan. 1 bill covers your stay in the rental unit for that
coming month), your mortgage payments are made at the end of your occupancy period.
That means your Jan. 1 mortgage statement represents interest for the month of
December, making it a tax-break-eligible bill for this year.
By accelerating that
payment even by just a day (Dec. 31, if your financial institution is open for
business then), you get an additional deduction for the interest paid.
Don't get greedy, though. You can't make your February, or any other upcoming mortgage payment, early to boost your year-end deduction amounts. Tax law generally prohibits write-offs for prepaid interest (there is an exception for loan points in some cases). Each year, you can deduct only that home mortgage interest for that year.
You also want to make
sure you don't cut it too close in making the early payment. Get the check in
the mail in plenty of time for it to arrive at your lender by year's end. If you
pay online, be sure you make the electronic transaction in time to have it credited
to your 2007 payment amount.
That way the added interest will show up on the annual
statement (usually a Form 1098 or an IRS-acceptable substitute) you'll get from
your lender in late January, detailing your deductible mortgage activity.
Timing your payment
Some tax professionals
say you can simply make your
extra mortgage payment late
this month with a check dated
Dec. 31 and count it toward
your deductions.
However, if you actually get your payment to the bank by the
last business day of the year, which happens to be Monday, the 31st this year, or a weekday or two early,
the extra interest will show up on the lender's official paperwork. And that means
no curious tax examiner will question any difference between the amount you claim
on your Schedule A and what your lender reported (and copied to the IRS) on the
1098 form.
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Updated:
Dece. 13, 2007
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