Could a Mortgage Refinance Reduce Tax Deductions?


One hidden cost of refinancing your home is losing some or all of your
tax deductions. Most people realize there is the cost to obtaining a
new loan. Mortgage brokers charge origination fees, appraisal fees,
title fees and other fees. Deciding to refinance should take the
amount of these fees into consideration. A hidden cost of a new
mortgage is the affect the refinance has on your tax deductions.
Interest DeductionThe IRS allows homeowners to deduct the cost of
interest paid on their primary mortgage from their taxes each year.
Homeowners must file a schedule A along with their 1040 returns,
itemizing all of their deductions for the year. One of these itemized
deductions is the mortgage
If you want to refinance your home, you need to have sufficient
equity, income and credit to qualify for a new mortgage. Due to the
mortgage crisis occurring in 2008 to 2009, lenders tightened their
underwriting requirements. Prior to 2009, credit scores of 640 were
acceptable. In 2011, however, you need a minimum score of 720. Some
lenders require an even higher score. In most cases, your lender will
limit you to a maximum loan amount of 80 percent of the appraised
value of your home. Closing FeesMortgage lenders are constantly
coming up with new closing fees. You will usually have a loan
origination fee, a loan processing fee, an underwriting and appraisal
fee, and escrow and title char
Personal Finance
Although the Internal Revenue Service lets you deduct mortgage
interest, significant differences exist between the treatment of
residential mortgages and the treatment of mortgages on rental or
investment property. Understanding these differences will help you to
decide how best to finance your investment property and whether to use
a refinance on other property to do it. Personal Residence
DeductionsThe Internal Revenue Service lets you deduct the cost of
mortgages on your personal residence. The deduction is reported with
other itemized deductions on your Schedule A. If you do not itemize
deductions, though, you will not be able to write off you mortgage
interest.
Limitations on Refi
Personal Finance
There are three different deductions that can reduce one's tax
liabilities. The first reduces the adjusted gross income on the first
page of Internal Revenue Service (IRS) Form 1040. These include
educator expenses, health savings accounts, self-employed health
insurance deductions and alimony paid. The second reduces the taxable
income and includes exemptions, the standard deduction and any
itemized deductions as well. The third type reduces tax liability
through subtracting federal taxes withheld, estimated payments and
credits. Deductions from Total IncomeLine 22 of Form 1040 is where
one's total income is listed. Lines 23 through 35 reduce the total
income to end up with the adjusted
Personal Finance
As a taxpayer, you want to avoid paying extra money or losing out on
money that is entitled to you. With proper financial planning, you
will be able to maximize your tax refund by reducing your taxable
income with deductions. When preparing your annual taxes, you must
choose whether to file the standard deduction or to itemize your
deductions. If your itemized deductions exceed the standard deduction,
you will want to itemize the deductions when filing your tax
return.Difficulty:ModerateInstructions Determine if you have enough
deductions to itemize. The best way to see all the allowable
deductions is to review Schedule A of Form 1040. This is where you
claim the itemized deductions. You
Personal Finance
The Internal Revenue Service (IRS) allows taxpayers to benefit from an
array of tax deductions related to home ownership. Two of the most
common deductions are for mortgage interest and property taxes paid.
Mortgage InterestInterest paid on a loan secured by either your main
home or a second home is tax deductible. The deduction is limited to
the interest paid on aggregate principal loan balances not exceeding
$1 million. The deduction is further limited to principal loan
amounts that do not exceed the actual cost of purchasing the home plus
amounts borrowed for home improvements.
Property TaxTaxes paid to
state and local governments based on the assessed value of your
property are
Personal Finance
The Internal Revenue Service encourages taxpayers to purchase homes by
allowing the deduction of annual mortgage interest payments.
Refinanced mortgages receive the same tax treatment as first mortgages
provided you meet all requirements. Taxpayers must become familiar
with the rules specific to refinanced mortgages before taking the
deduction. Deduction EligibilityTo deduct the interest on a second
mortgage you must file a Form 1040 with itemized deductions, be
legally liable for the loan, and have a true debtor-creditor
relationship with the mortgage lender. The mortgage interest deduction
starts phasing out for taxpayers with an adjusted gross income in
excess of the proscribed amount.
Personal Finance
You want to refinance your mortgage loan to one with lower interest
rates. You know that this can save you hundreds of dollars a month.
But you also know that refinancing a mortgage loan isn't inexpensive.
Fortunately, you can compare the costs of refinancing with the savings
you'd receive each month from a lower interest rate to evaluate any
refinancing offers you receive. You can then determine whether a
refinance makes financial sense.Difficulty:ModerateInstructions
Call several mortgage lenders and ask how much they typically charge
to refinance a mortgage loan. These costs vary by lender, but the
Federal Reserve Board says that homeowners usually pay from 3 percent
to 6 percent of th
Personal Finance

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