Cut taxes with early mortgage payment
When shifting deductions doesn't pay
A word -- actually, three 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 and second 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.