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© 1999-2007 by Marabella Books

 

 

 

 

 


Early Tax Planning: Mortgage Interest

If you are a homeowner, planning for tax day should start now.

For most people mortgage interest is still the biggest, single tax deduction they claim.  And itís possible to stretch this benefit (some would call it a right) even further. 

This year plan to make an extra payment on your mortgage.  You can accomplish this in two ways: bi-weekly payments or a single extra payment. 

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If you make 26 bi-weekly half payments, you have made the equivalent of an extra full payment by the end of the year.  For example, on a $100,000, 30-year mortgage at 8%, you can save almost 30% in interest expenses and shave off nearly 8 years on the loan. The extra monies go directly to principal, you increase your equity and reduce your interest costs over the life of the loan. 

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Alternatively, you could make a single extra payment in December.  The IRS does not allow pre-paid interest deductions.  However, because your January statement often reflects interest built-up in December, they will consider this a January payment.  If the Form 1098 from the lender does not reflect this payment, you must attach an explanation to your return.  Thus, the interest that you normally would pay in January counts for the current tax year and helps increase your deductions, if you itemize.

If the early bird gets the worm, todayís a good time to decide how to maximize your investment in your home and reduce your taxes.

As always, everything may not apply to your individual situation.  Please seek the help of a tax professional if you have questions.

Copyright © 2001, Marabella Books