Mortgage Rate News

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If you plan to take the mortgage interest deduction, you have to realize that you cannot take the standard deduction. The standard deduction is used for those who do not wish to go through the bother of toting up their deductions. Right now, the standard deduction for married filing jointly is $11,400. This means that you need to decide whether you have enough other deductions to make it worth it to itemize. (Or maybe you pay enough in mortgage interest alone to justify itemizing. Consult an accountant or tax professional before deciding what to do in any case.) If you choose to take the standard deduction, you can’t itemize — and your mortgage interest deduction becomes, in fact, useless, as MainStreet.com reports:

Imagine a couple in the 15 % tax bracket with a $200,000 mortgage. They’d pay about $10,900 in interest in the first year, saving $1,640 in tax if they itemized. But by claiming the $11,400 standard deduction instead, they could get a bigger tax saving, $1,710. For this couple, the mortgage interest deduction is worthless.

However, there are other considerations. My husband and I give to charity. That is something that goes on the itemized deduction list. These deductions are claimed on Schedule A. Other deductions include mortgage insurance premiums, job expenses that you weren’t reimbursed for, tax preparation fees, unreimbursed medical and dental expenses, and theft losses.

Instead of waiting until tax season 2010, now is the time to start preparing your taxes. Figure out how you can decrease your tax bill. One way to do that is to calculate your possible deductions. Then you can plan some of your expenditures and budget around what will help you obtain the best tax results.

Planning ahead is an important part of preparing your finances. Figure out whether you have enough deductions to make itemizing worth it. This is one of the best ways to get the most out of your home mortgage loan interest paid.

There is a great deal of excitement over the home buyer tax credit in the recently passed economic stimulus bill. However, many people are wondering if there are any benefits for those planning to refinance their homes. Sure, most people know about the interest rate tax deduction, but there are other tax deductions associated with refinancing:

1. Points paid.
2. PMI premiums.

There isn’t anything as nice as what’s being offered to home buyers. In fact, neither of these things is new. However, they might be things you haven’t thought about.

Points paid when refinancing

Just as you can pay points when buying a home, you can also pay points when you are refinancing. However, the way you deduct points when refinancing is different. Kiplinger reports on how it works when you deduct points paid during refinancing:

Instead of writing off those points all at once, you must spread the deduction over the life of the loan. Say, for example,you took out a $250,000, 30-year mortgage and paid two points, or $5,000 (each point equals 1% of the loan amount). Because you’re refinancing, you can deduct only one-thirtieth of those points every year — just $166.67 per year for 30 years.

While it’s not a ton, every little bit helps — especially if it’s just enough to drop you to the next tax bracket down (or at least keep you from moving up into the next tax bracket).

PMI premiums

In many cases, people do not have 20% equity in their homes. This is especially true since the beginning of this decade. If you have less than 20% equity in your home, you are required to pay private mortgage insurance (PMI). This covers the cost of your mortgage if you default. When you refinance, you still have to pay for PMI if you owe more than 80% on your home. Happily you can deduct this amount if your mortgage loan was taken out in 2007 or later. You have to itemize, though, and there are some income requirements.

It’s worth looking into the tax deductions you can get when refinancing. It’s best to consult with a tax professional before making your decisions, however. I am not a tax professional.

It’s getting crazy out here in the world of finance. Chances are that what is going on right now will affect us for quite some time to come. But that isn’t going to stop our leaders from continuing its policies. No matter that they probably won’t help accomplish stated short term and long term economic objectives. At any rate, here are some of the highlights of this past week:

1. Bank of America to get a bailout. Great stuff. After making poor business decisions and then lying about it, Bank of America gets a bailout, courtesy of U.S. taxpayers. What I still don’t understand is why people get all bent out of shape over helping regular folks avoid foreclosure, but barely bat an eyelash at giving billions to a bank that made terrible decisions and is bringing us down with it.
2. TARP funds to be released. Back when the TARP fund idea was release, only half of the money was allowed to be paid out at once. Now, though, Congress is ready to release the other half of the TARP bailout funds. This time, Congress insists that proper controls be placed on the money. I’m not very hopeful, though. We have no idea of what happened to the last $350 billion, and I don’t think that we’ll have any idea what happens to this $350 billion. For some reason, the word of Congress just isn’t something I trust.
3. Economic stimulus legislation unveiled. A new economic stimulus bill has been unveiled. One that supposedly supports investment in America, will promote jobs, and help the regular folks (through local state funding and tax cuts). Again, I’m not sure what will be accomplished by this. It seems like a lot of the same stuff. But one can always hope.

What was your favorite bit of finance news this week?