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 tax deductions.
However, if you actually get your payment to the bank by the last business day of the 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.
If your year-end mortgage statement doesn't reflect the extra payment's interest, go ahead and deduct the correct amount on your tax return and attach a statement explaining why your number, not the lender's, is accurate.
If your mortgage holder pays your annual property tax bill from an escrow account, that also will be listed as a deductible home-related expense on your Form 1098. But if you, not your lender, pay your property tax bill, and it's due early next year, consider paying it in December as well. As with your mortgage interest, this payment -- and tax deduction -- will be shifted into this tax year.
When shifting deductions doesn't pay
A word -- actually, 3 words -- of warning about accelerating some tax payments: alternative minimum tax. This parallel tax system was devised in 1969 to guarantee that wealthy filers paid their fair share to the IRS. But millions of upper middle-class filers have found that this tax, referred to as the AMT, applies to them.
There is, however, some good AMT news. The American Taxpayer Relief Act of 2012, also known as the "fiscal cliff" bill enacted on Jan. 2, 2013, included inflation indexing of the amount of income that is exempt from the AMT. Previously, taxpayers had to wait for Congress to increase the amounts, often making tax planning difficult. Now the income levels at which the AMT applies will increase automatically each year.
Under the AMT, some usually acceptable tax breaks aren't allowed. Mortgage interest on your main home and your 2nd home is still AMT-deductible, but home-equity loan interest could be disallowed. And real estate and personal property taxes aren't deductible under the AMT. So before you shift payment of those taxes into this year, make sure you won't face an AMT bill where the write-offs won't be of any tax use.
And remember: While an early payment will give you 13 mortgage interest amounts to deduct this year, it means that the next tax year you'll have only 11 -- or 12, if you pay a little early next December, too. So before you send off that check, make sure you really need the added tax deduction amount on this coming return.