Tax Question

[giantpinkbunnyhead]

OK, One of the benefits of home ownership is supposed to be that you save a lot of $$ on tax by deducting the interest you pay on your home loan.

But then I read that in order to claim this savings, you have to forgo the standard deduction? Is this right? My standard deduction is larger than my total-interest-paid. How is this supposed to save money? Am I not understanding this right? It doesn't seem like this "benefit" is a benefit at all, just some tricky marketing crap.

 

[Fingolfin269]

Rich people save money because their houses cost more. Learn this and then you will understand.

Actually, I'm not rich, but next year will be the first full year I've lived here so I should be able to save at least some money.

 

[giantpinkbunnyhead]

Ahh... got it... another benefit for the un-needy rich. Fantastic.

 

[MixMasterTang]

Don't forget other things that you can deduct if you itemize.

Itemized deductions are certain expenses that you can use to lower your taxes. The categories of itemized deductions are:

Medical and dental expenses,
State and local income taxes, or sales tax,
Real estate and personal property taxes,
Home mortgage and investment interest,
Charitable contributions,
Casualty and theft losses,
Job expenses, and
Miscellaneous deductions.

 

[Fingolfin269]

I thought they got rid of the ability to deduct state sales tax. I remember being pretty pissed about it since we have a high sales tax here in TN and no state income tax. Fairness at its finest.

Don't you have to meet a minimum amount of medical/dental expense before being able to deduct?

 

[MixMasterTang]

Originally posted by: Fingolfin269
I thought they got rid of the ability to deduct state sales tax. I remember being pretty pissed about it since we have a high sales tax here in TN and no state income tax. Fairness at its finest.

Don't you have to meet a minimum amount of medical/dental expense before being able to deduct?

Yeah I think the medical/dental has to at least be 7% of your total income. I think the sales tax deduction has been brought back. Here is a link to the IRS page about the deductible taxes.

 

[MixMasterTang]

The Working Families Tax Relief Act of 2004 gives taxpayers who previously had no obligation to pay state income taxes the option of now deducting their state sales tax.

 

[giantpinkbunnyhead]

Huh... I guess I don't really have it so bad after all... living where i do, I forget that there's even sales tax and state income tax (we have neither). Property taxes are also cheap (but local homeowners cry bloody murder about them of course) So I can't complain about not being able to deduct this or that. No health care expenses; no casualties or losses... Really the only thing I could deduct would be the mortgage interest, and property taxes. Even between those two, they might equal my standard deduction at best. Grr... still disappointed I guess, I thought I had a little extra "free money" located.

 

[TXHokie]

The mortgage interest + real estate tax usually add to quite a chunk that would exceed the standard deduction unless you have a really low mortgage loan or nearing paying it off (i.e. not enough to deduct) - in which case it's a nice problem to have.

 

[giantpinkbunnyhead]

Wait... I think I have this figgered out now. I bought the house in June... that's why my interest/taxes won't beat my standard deduction, because I'm not working on a full year. I bet next year, however... I will be able to best the standard deduction by a few grand. Wow.. I feel dumb now. What can I say, it's Sunday morning, far earlier than any normal person should ever have to be awake.

 

[MixMasterTang]

Originally posted by: giantpinkbunnyhead
Wait... I think I have this figgered out now. I bought the house in June... that's why my interest/taxes won't beat my standard deduction, because I'm not working on a full year. I bet next year, however... I will be able to best the standard deduction by a few grand. Wow.. I feel dumb now. What can I say, it's Sunday morning, far earlier than any normal person should ever have to be awake.

Did you pay any points on your loan? Those are also deductible.

 

[Fingolfin269]

Originally posted by: MixMasterTang

Originally posted by: giantpinkbunnyhead
Wait... I think I have this figgered out now. I bought the house in June... that's why my interest/taxes won't beat my standard deduction, because I'm not working on a full year. I bet next year, however... I will be able to best the standard deduction by a few grand. Wow.. I feel dumb now. What can I say, it's Sunday morning, far earlier than any normal person should ever have to be awake.

Did you pay any points on your loan? Those are also deductible.

Can you explain that? Would it not be considered part of the interest deduction?

 

[giantpinkbunnyhead]

Nope, no points.

 

[Fingolfin269]

Originally posted by: MixMasterTang
The Working Families Tax Relief Act of 2004 gives taxpayers who previously had no obligation to pay state income taxes the option of now deducting their state sales tax.

I found this but have not found official word that I am correct in thinking Congress did NOT extend it. I just remember hearing something about it on local talk radio.

Officially, the sales tax write-off expired on Jan. 1. Congress is considering legislation to extend it, at least through 2006, but has not yet taken action.

 

[dquan97]

Originally posted by: Fingolfin269

Originally posted by: MixMasterTang

Originally posted by: giantpinkbunnyhead
Wait... I think I have this figgered out now. I bought the house in June... that's why my interest/taxes won't beat my standard deduction, because I'm not working on a full year. I bet next year, however... I will be able to best the standard deduction by a few grand. Wow.. I feel dumb now. What can I say, it's Sunday morning, far earlier than any normal person should ever have to be awake.

Did you pay any points on your loan? Those are also deductible.

Can you explain that? Would it not be considered part of the interest deduction?

the points are reported on a different line on Sch. A

 

[JulesMaximus]

Originally posted by: giantpinkbunnyhead
OK, One of the benefits of home ownership is supposed to be that you save a lot of $$ on tax by deducting the interest you pay on your home loan.

But then I read that in order to claim this savings, you have to forgo the standard deduction? Is this right? My standard deduction is larger than my total-interest-paid. How is this supposed to save money? Am I not understanding this right? It doesn't seem like this "benefit" is a benefit at all, just some tricky marketing crap.

Yes, you either take the standard deduction or you itemize. You cannot do both so take whichever deduction is larger.

BTW-You should look at all the possibilities for itemized deductions, not just home mortgage interest. Did you pay points on your loan? That's deductible. So are charitable contributions and money you give to the church as well.

 

[her209]

Why would someone pay more in interest just to get only a portion of it back in the form of their tax returns? I guess its better than nothing, but it seems like a good reason for the banks to charge more for this "perk".

 

[Vic]

Originally posted by: giantpinkbunnyhead
Ahh... got it... another benefit for the un-needy rich. Fantastic.

Other way around, dumbass. The standard deduction is so the needy poor at least get a minimum amount to deduct.

 

[giantpinkbunnyhead]

Originally posted by: Vic

Originally posted by: giantpinkbunnyhead
Ahh... got it... another benefit for the un-needy rich. Fantastic.

Other way around, dumbass. The standard deduction is so the needy poor at least get a minimum amount to deduct.

Ah great, a name-caller. Vic, I thought you were above that. My mistake.

 

[Vic]

Originally posted by: giantpinkbunnyhead

Originally posted by: Vic

Originally posted by: giantpinkbunnyhead
Ahh... got it... another benefit for the un-needy rich. Fantastic.

Other way around, dumbass. The standard deduction is so the needy poor at least get a minimum amount to deduct.

Ah great, a name-caller. Vic, I thought you were above that. My mistake.

Well, your comments in this thread are amazingly uninformed. I strongly suggest that you have your taxes prepared by a professional... for your own sake.

 

[giantpinkbunnyhead]

Originally posted by: Vic

Originally posted by: giantpinkbunnyhead

Originally posted by: Vic

Originally posted by: giantpinkbunnyhead
Ahh... got it... another benefit for the un-needy rich. Fantastic.

Other way around, dumbass. The standard deduction is so the needy poor at least get a minimum amount to deduct.

Ah great, a name-caller. Vic, I thought you were above that. My mistake.

Well, your comments in this thread are amazingly uninformed. I strongly suggest that you have your taxes prepared by a professional... for your own sake.

I know they are uninformed... hence, my creation of this thread. I don't have immense amounts of knowledge in every possible area of my life, I'm sorry to say.

 

[Vic]

Yeah well anyone who thinks they save money through their mortgage interest deduction should give me a dollar so I can give them a quarter back. Hey, it's a great deal.

 

[giantpinkbunnyhead]

Originally posted by: Vic
Yeah well anyone who thinks they save money through their mortgage interest deduction should give me a dollar so I can give them a quarter back. Hey, it's a great deal.

Yeah, I see this now. The thing of it is though, lots of people love to point out that you can write the interest off on your taxes. Wow! Benefit of home ownership! But I did not know that it's only a benefit if the total interest/taxes exceeds your standard deduction. I fully expected that I'd actually get to enjoy this benefit that is so widely touted. That's all it's about really... I thought it applied to everyone who bought a home; but it turns out it only applies to those who buy a home on terms pricey enough to accrue interest and taxes beyond the standard deduction. And that is not my case this year. Now, expecting to save money on interest played no part in my homebuying decision, but I did think of it as a nice side-effect.