A Quick Tax Tip For Homeowners

Home, sweet home

As I was sitting in class today, I tried to think of ways that home owners can help save a bit more money in 2010 and it occurred to me that there's one easy, easy way to do this. Pay your January mortgage in December! When you pay one month early, making the extra payment in December 2010,  that payment's mortgage interest can be deducted on your Schedule A when you file your tax return in 2011.

But wait you say, isn't that prepaid interest, which in most cases cannot be deducted in full in the tax year in which it's paid? Nope. House payments are applied at the end of your occupancy period, rather than the beginning. That means the payment you make on the 1st of each month covers the previous thirty or thirty-one days you just spent in your home.

Compare that to paying rent, where the landlord wants that money at the beginning of the month to cover you staying in his or her place for the upcoming month. Significantly different. The interest portion of your January 1 mortgage payment includes interest for December's loan period. That makes it eligible to be deducted for this tax year.

If you have the cash to take advantage of this extra interest deduction, you want to get that in as soon as possible. Get that payment in early to give your loan company time to get it on the books so it can be reflected on your annual Form 1098, which shows the details of your mortgage interest payments.

And don't worry if your 1098 looks different than the official IRS form. Most lending institutions don't use the IRS document. Instead, they produce substitute 1098 statements that include all the information the IRS wants, just in a format that better suits the lender's paperwork system.

What if you just can't swing the early mortgage payment until closer to Dec. 31? It is, after all, holiday gift-buying time. That's not a problem. As long as you have it en route to your loan company by the end of the December, you can go ahead and deduct the extra interest on your 2010 tax return. But you want to make sure to include a statement letting the IRS know why your amount differs from your banker's annual 1098 tally, since the tax agency gets a copy of that document, too.

And you want to make sure you take advantage of this while it still exists! There's talk lately of eliminating the mortgage tax deduction! The National Commission on Fiscal Responsibility and Reform has pointed out that the people who most often use the mortgage interest deduction are not the middle income families that were originally the intended audience. In order to try and simplify the tax code, and to help get the budget balanced, some people are considering eliminating the mortgage tax break for homes valued at over $500,000. Will it happen? Hard to say. It would have a strong impact on home ownership and that's an area that most politicians are unwilling to step on!  

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jdavis88 5 years ago from Twitter @jdavis88hub

This may be more important next year if the tax commission gets their way and ends the tax break for mortgage interest. Great hub!

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