Ready to retire - but still have a mortgage? Find out why paying it off in a hurry might not be the best plan.
Much to the frustration of taxpayers all over the country, the tax-filing season begins in January and runs through April 15 of each year. Taxes are an inevitable part of life and something that you can’t avoid.
In This Article:
- Filing Responsibilities
- Calculating Taxes
- Mortgage Interest Deduction
- What is Not Tax Deductible?
- Other Important Deductions to Consider
As the current tax season approaches, it presents an opportunity to help tax-payers clarify their responsibilities and remind them of certain important tax deductions that may be available. Consider the following when you file your taxes to help keep more money in your pocket.
Every person in the United States is required to file their tax returns by April 15 so long as they have some form of qualifying income. Based on filing status, income and available deductions, tax-payers must file a 1040EZ, 1040A or 1040 (long-form for itemized deductions).
The deadline to file for an extension to file an individual tax return is July 15.
Qualifying income is generally defined as, but not limited to wages, commissions, miscellaneous income (rental, interest), investment income and alimony. These forms of income are reported on a periodic basis to the IRS and State governments by employers, banks, contract employers and/or other responsible parties.
The most common tax receipts that must be sent to tax-payers by January 31 are W-2s and 1099-Misc forms.
While the IRS requires individuals to report all forms of income, they also allow certain living costs to be used as deductions to offset income in order to arrive at a “taxable income” number on which tax liabilities are calculated.
If a tax-payer’s deductions fail to exceed the combined statutory standard deduction, they will want to file the 1040EZ or 1040A. If itemized deductions exceed this number, the 1040 becomes preferable.
Mortgage Interest Deduction
For a majority of tax-payers, the largest tax deduction available is usually mortgage interest paid on secured debt where the primary residence and in some cases second homes in Boise or Portland or rental property serve as collateral. In most of these cases, all interest paid during the year is deductible. This is at least one thing that homeowners have to look forward to during tax season, as it can mean more money kept in your pocket.
If the mortgages are large enough, the total interest paid will typically push the tax-payer into a position to itemize deductions. It is important for tax-payers to read the rules related to mortgage interest deductions as they tend to be somewhat complicated.
Homeowners in Seattle or Denver should know that as of 2018, the limits on qualified home loans were lowered. As of the beginning of 2018, couples who file their taxes jointly are only able to deduct interest on up to $750,000 of eligible mortgages, which is down from $1 million the year before. Married taxpayers who are filing separate tax returns have a cap of $375,000, which was previously $500,000. This change was made as a result of the 2017 Tax Cuts and Jobs Act.
What is Not Tax Deductible?
While you can deduct your mortgage interest, there are some things associated with your WA, OR, ID, or CO home that you cannot deduct, including the following:
- Homeowners insurance
- Title insurance
- Additional principal payments made on your mortgage
- Interest accrued on a reverse mortgage
Other Important Deductions to Consider
Once a tax-payer qualifies to itemize deductions, many other living expenses become deductible. Other prominent deductions include property taxes, charitable contributions, childcare costs, qualified moving expenses, certain work related expenses and certain medical expenses.
Prior to using any deduction, it is incumbent on the tax-payer to review deduction guidelines in order to determine applicability.
Interested in Applying For a Home Loan?
At Sammamish Mortgage, we provide many mortgage programs to borrowers all throughout the Pacific Northwest, including Washington State, Colorado, Idaho, and Oregon. We are a family-run business and work hard to help borrowers realize their dreams of owning a home. We’ve been helping borrowers since 1992, and we’d love to help you too. Contact us today if you have questions about applying for a home loan or are ready to apply today.