Can I deduct mortgage interest? |  Dear
Dollar Diva,
I'm a first time homeowner. Can I claim my mortgage interest
and closing points as itemized deductions?
 Congratulations
on owning a piece of the American Dream! Interest and closing points are deductible
on Form 1040 Schedule
A, Itemized Deductions. However, new homeowners sometimes don't get the benefit
of deducting interest, points and real estate taxes the first year because their
total itemized deductions are less than the standard deduction for their filing
status.
For those over 65 or blind, the standard deduction
is higher and can be determined by using the worksheet in Internal Revenue Service
Publication 501,
Exemptions, Standard Deduction and Filing Information.
|
1999 Standard deduction | |
Married filing jointly; qualifying widow(er) | $ 7,200 |
| Head of Household |
$ 6,350 | | Single |
$ 4,300 | | Married Filing
Separately | $ 3,600 | Real
estate taxes
For most people, deducting real estate
taxes is a piece of cake: The mortgage company sends a Form 1098 reporting the
real estate taxes it paid for you. If you're lucky enough some day to have no
mortgage and you write a check to pay the taxes, you'll still be able to deduct
them. You simply slap the number on line 6 of Schedule A, Itemized Deductions,
and it's done. That's not so for the first-time home buyer. The
Diva is going to assume your home was bought May 1, 1999, and you or your mortgage
company paid $3,000 in 1999 real estate taxes that December. Taxes are for a 12-month
period, but you only lived in the house for nine -- what do you do? Look
at the closing statement. There will be a line showing real estate taxes prorated
from Jan. 1, 1999 through April 30, 1999 -- the four months that the seller lived
in the house. The amount will be around $1,000, or one-third of the total tax
bill because four months is one-third of the tax year. The seller gets to deduct
this amount on his tax return, so you the buyer cannot. The $3,000 you paid has
to be adjusted down by the $1,000 you received credit for at the closing, reducing
your real estate tax deduction to $2,000. Remember, if you
can't itemize this year because you don't have enough deductions, there's always
next year. But before you give up, read Bankrate.com's "Don't
give the IRS more than it deserves" to make sure you haven't missed anything.
The Diva wants you to get everything that's coming to you. |
