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Mortgage Deductions: What You Can Do, What You Can't

by Home Action News

Mortgage Deductions: What You Can Do, What You Can't

 

What is home acquisition debt? For IRS purposes, it's a mortgage you took out after Oct. 13, 1987, to "buy, build, or substantially improve a qualified home," according to IRS regulations. This debt also must be secured by that home. (There are slightly different rules for older mortgages — see below.) In most cases, you can deduct all the mortgage interest.

It can be a great deal, but there are a number of rules that affect what you can and cannot do. Key among them is the limit: The total amount you can treat as home acquisition debt at any time on your home cannot be more than $1 million ($500,000 if married filing separately).

Know Your Definitions

For purposes of deductions, the IRS has specific definitions of what is meant by a "home." Fortunately, the definitions are wide-ranging. According to regulations, a home can be your main home or a second home — like a vacation home. And it doesn't have to specifically be a house. For example, a condominium, cooperative or mobile home counts. Even a boat can count as a home for these purposes — what the IRS is looking for is any facility with sleeping, cooking and toilet facilities. So don't try to deduct a tent.

So What Exactly Can You Deduct?

There are three categories of mortgage debt:

  1. Mortgages you took out on or before Oct. 13, 1987 (called grandfathered debt).
  2. Mortgages you took out after Oct. 13, 1987, to buy, build or improve your home (called home acquisition debt), but only if throughout 2014 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).
  3. Mortgages you took out after Oct 13, 1987, other than to buy, build or improve your home (called home equity debt), but only if throughout 2014 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).

The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home, according to the IRS.

More details are available in Publication 530 and Publication 936.

Yes -- You Can Challenge Your Property Tax

by Frank Taglienti

Yes -- You Can Challenge Your Property Tax

 

Typically, every few years American homeowners have the value of their property assessed by their local government. The property tax you pay is based on the local tax rate, which you have no control over (except at the voting booth!), and the assessed market value of your home, which you can appeal in order to and thus potentially lower your property tax bill.

It's worth noting that the National Taxpayer's Union estimates that a majority of Americans who challenge their property taxes win when properly prepared.

Yes — You Can Challenge Your Property TaxGenerally speaking, there are three ways you can challenge the assessed value of your home:

  1. You can challenge the work of your local government's tax assessor. To assess your home's value, the assessor uses information that your local government has about your property. This data may include the condition of your property, your home's features and your home's square footage. Compare your own data to the government's, and if the local government's information is off you may have grounds to challenge the assessment.
  1. The finance site Kiplinger.com recommends that you see how the assessed market value of your home compares to similar homes in your neighborhood. Typically, this data is public information. If you determine that your home is assessed at a value that's higher than similar homes close by, you may be able to challenge your assessment.
  1. Tax assessors use the sales prices of similar homes to establish a market value. You can also challenge your assessment if you can show that similar homes near you are selling for prices lower than what your home was assessed. Sales records of homes are typically public information.

The appeals process varies by location, so it's important you follow the specific instructions that your locality provides with your assessment letter, particularly appeal deadlines.

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Photo of Frank Taglienti Real Estate
Frank Taglienti
Berkshire Hathaway PenFed REALTORS®
565 Benfield Road, Suite 100
Severna Park MD 21146
410-440-0824

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