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DPChallenge Forums >> General Discussion >> Help ! Tax / Interest question
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 08/27/2007 12:53:50 PM · #1
Hello,

Without going in to all the details, I need to know if there is a cap on the mortgage interest you can deduct on Federal Income tax.

Also, If I sell a house "at a loss" is that loss deductible?

I can't meet with my tax advisor until 9/10/07. I just want to see if any of you photogs know the answer or a good site to guide me.

KS
 08/27/2007 01:02:04 PM · #2
Under the current tax code, mortgage interest on first and second homes is generally deductible as long as these loans total less than $1.1 million.

I seriously doubt you can deduct a loss. Why would you sell it for a loss anyway unless you got caught in one of those sub-prime sucker low-rate ARM's that's readjusting now to like 8-10%.
 08/27/2007 01:04:24 PM · #3
Or an interest only loan with no equity in a market that wont sell causing you to lower the price just to get out of it.

Originally posted by NstiG8tr:
Why would you sell it for a loss anyway unless you got caught in one of those sub-prime sucker low-rate ARM's that's readjusting now to like 8-10%.


Message edited by author 2007-08-27 13:06:31.
 08/27/2007 01:06:40 PM · #4
I'm happy to say I didn't get suckered and I don't have to sell at this point!

I recently built a home, financed 44% of it. We have been in it since November, but my wife is getting "homesick" and we MAY want to sell it. However, we know the market is bad for sellers right now.

As far as that interest question.... Let's use round numbers here:

Say my household income is $100,000/year and interest payments were $10,000 for that year...would my adjusted gross be $90,000 or is it more complicated than that?

KS

Originally posted by NstiG8tr:
Under the current tax code, mortgage interest on first and second homes is generally deductible as long as these loans total less than $1.1 million.

I seriously doubt you can deduct a loss. Why would you sell it for a loss anyway unless you got caught in one of those sub-prime sucker low-rate ARM's that's readjusting now to like 8-10%.
08/27/2007 01:08:26 PM · #5
more complicated - adjusted gross does not include your deductions but sources of income and loss. But you have other deductions that you would include in determining your actual tax burden - including yourselves, the taxes you pay to the state, etc. Get a tax accountant and/ or Turbotax...

Originally posted by kenskid:
Say my household income is $100,000/year and interest payments were $10,000 for that year...would my adjusted gross be $90,000 or is it more complicated than that?



Message edited by author 2007-08-27 13:10:06.
 08/27/2007 01:10:04 PM · #6
Hello,

I have an appt on 9/10/07 with tax man...

I know about all the other deductions, I'm just trying to get some idea of how the interest works to lower my "gross income".

Originally posted by bassbone:
more complicated - you have other deductions - including yourselves, the taxes you pay to the state, etc. Get a tax accountant and/ or Turbotax...

Originally posted by kenskid:
I'm happy to say I didn't get suckered and I don't have to sell at this point!

I recently built a home, financed 44% of it. We have been in it since November, but my wife is getting "homesick" and we MAY want to sell it. However, we know the market is bad for sellers right now.

As far as that interest question.... Let's use round numbers here:

Say my household income is $100,000/year and interest payments were $10,000 for that year...would my adjusted gross be $90,000 or is it more complicated than that?

KS

Originally posted by NstiG8tr:
Under the current tax code, mortgage interest on first and second homes is generally deductible as long as these loans total less than $1.1 million.

I seriously doubt you can deduct a loss. Why would you sell it for a loss anyway unless you got caught in one of those sub-prime sucker low-rate ARM's that's readjusting now to like 8-10%.
08/27/2007 01:12:38 PM · #7
Originally posted by kenskid:


I know about all the other deductions, I'm just trying to get some idea of how the interest works to lower my "gross income".



Interest deductions don't lower your adjusted gross income. Deductions are 'added in' after AGI is determined on a 1040

Edited Spelling

Message edited by author 2007-08-27 13:13:00.
 08/27/2007 01:13:44 PM · #8
You also may get f***ed with the alternative minimum tax. I'm not sure that I understand how it works, or have an easy answer on when does that kick in, I just know that it kicked me last year when suddenly all the deductions I thought I had evaporated. IRS and the Treasury department got a nice gift from me back in April...

Message edited by author 2007-08-27 13:14:13.
 08/27/2007 01:15:49 PM · #9
Before Tax Homeownership Costs:

Mortgage Interest........................$9,177
Property Taxes...........................$1,415
Total of Before Tax Homeownership Costs..$10,592
Itemized Deductions:

1. Homeownership Deductions

Mortgage Interest..............$9,177
Property Taxes.................$1,415
Non-homeownership Deductions...$2,000
Total..........................$12,592
2. Standard Deductions=$5,450

Total Itemized Deductions=$7,142

Multiply Total Itemized Deductions by Marginal Tax Rate to get Homeownership Tax Savings:

$7,142 x .15 = $1,071

After Tax Homeownership Costs = Homeownership Tax - Before Tax Savings:

$10,592 - 1,071 = $9,521



Message edited by author 2007-08-27 13:19:18.
 08/27/2007 01:21:08 PM · #10
Ok...

I'm using fudged rounded numbers for simplicity but:

Interest paid $15,000
Tax paid $8000

Let's pretend that I have no other deductions and my household income is a rounded $100,000.

How will that play out?

Originally posted by NstiG8tr:
Here, plug in your own figures:

Before Tax Homeownership Costs:

Mortgage Interest........................
Property Taxes...........................
Total of Before Tax Homeownership Costs..
(Add the 2 above)

1. Homeownership Deductions

Mortgage Interest..............
Property Taxes.................
Non-homeownership Deductions...
Total..........................
2. Standard Deductions=

Total Itemized Deductions=

Multiply Total Itemized Deductions by Marginal Tax Rate to get Homeownership Tax Savings:

$7,142 x .15 = $1,071

After Tax Homeownership Costs = Homeownership Tax - Before Tax Savings:

$10,592 - 1,071 = $9,521
08/27/2007 01:25:44 PM · #11
taxable savings I guess would be $2632.50. So your adjusted income would be $97367.5 ?????
 08/27/2007 01:29:13 PM · #12
My god...so with $18,000 worth of property tax and interest I would only get a $2632.50 adjustment? Yikes !

Originally posted by NstiG8tr:
taxable savings I guess would be $2632.50. So your adjusted income would be $97367.5 ?????
08/27/2007 01:35:27 PM · #13
That's how I figure it using that chart. Somewhere along the line I think people always thought that mortgage interest deductions where dollar for dollar and that just isn't the case.

Message edited by author 2007-08-27 13:37:17.
 08/27/2007 01:40:34 PM · #14
Originally posted by kenskid:
My god...so with $18,000 worth of property tax and interest I would only get a $2632.50 adjustment? Yikes !


No with 18000 worth of property tax and interest you would save $1882.50
 08/27/2007 02:26:51 PM · #15
Multiplying by .15 assumes he's in the 15% tax bracket and that is the $'s that you save on your tax return.

I'm guessing you are hoping the deductions are going to keep you in the next lower tax bracket to keep your tax % lower? If that's the number you are looking for, then you are correct, 18,000 of mortgage interest paid should come off the 100K gross and that alone brings your taxable income to 82K. I'm not a tax guy, but that's how I understand it.
 08/27/2007 02:37:06 PM · #16
Originally posted by LoudDog:
Multiplying by .15 assumes he's in the 15% tax bracket and that is the $'s that you save on your tax return.

I'm guessing you are hoping the deductions are going to keep you in the next lower tax bracket to keep your tax % lower? If that's the number you are looking for, then you are correct, 18,000 of mortgage interest paid should come off the 100K gross and that alone brings your taxable income to 82K. I'm not a tax guy, but that's how I understand it.


15% is being modest. If he truly makes $100,000/yr. his savings is gonna be even less because he would be in the 25% tax bracket. Look at the chart, mortgage deductions aren't dollar for dollar.

Message edited by author 2007-08-27 14:39:36.
 08/27/2007 03:10:20 PM · #17
Total income - deductions = taxable income

Tax paid = taxable income x tax rate (% based on taxable income in tax chart)

I did a little looking to verify, mortgage interest should be 100% tax deductable.

If you make 130K and paid 20K in mort interest (assuming no other deductions) your taxable income is now 110K so you drop from the 28% to the 25% tax bracket (assuming married filing jointly). so your taxes paid is .25 x 110K or roughly $27K. If you are a renter and and paid no mort interest your taxes would have been 130K x .28 or roughly 36K. This is why it's great to own a home come tax time.

08/27/2007 03:43:19 PM · #18
You da man ! This is the answer I was looking for (if this is true) !

Now what about property taxes? Does that come off the bottom line of my income? If I earn 100,000 and paid 8,000 in property tax...is my calculated income 92,000 ?

Like I said, I'm meeting with my taxman in two weeks but I'd like some input now if you have the time.

Thanks,

Originally posted by LoudDog:
Total income - deductions = taxable income

Tax paid = taxable income x tax rate (% based on taxable income in tax chart)

I did a little looking to verify, mortgage interest should be 100% tax deductable.

If you make 130K and paid 20K in mort interest (assuming no other deductions) your taxable income is now 110K so you drop from the 28% to the 25% tax bracket (assuming married filing jointly). so your taxes paid is .25 x 110K or roughly $27K. If you are a renter and and paid no mort interest your taxes would have been 130K x .28 or roughly 36K. This is why it's great to own a home come tax time.


Message edited by author 2007-08-27 15:44:23.
 08/27/2007 04:31:04 PM · #19
Unfortunately, this is not how it works in the states. You are not suddenly paying 3% more taxes if you earn that $1 that throws you in the higher bracket.

You pay e.g. 25% up to $xxx, and then for every dollar above $xxx you pay 28% only on the ($actual - $xxx) amount.

That is valid for all brackets. 15% on everything from $b1 to $b2, 21% (or whatever the next rate is) on the amount on top of $b2 up to $b3, then the next percentage (28% ?) on the over $b3 etc.

This does not make the tax savings that great.

If anyone can prove that paying interest is great because you save money by doing that, I'd be willing to look at it. The only advantage of renting vs. buying a house is comfort as you (usually) cannot rent that big of a place...

Having 10 year mortgage is better than 15 year mortgage, which is much better than a 30 year mortgage. The interest paid in those three cases is small to medium to huge. Yes, you pay less taxes when gushing interest payments, but when you take into consideration how much money you are left with, lower interest payments always win.
 08/27/2007 05:21:46 PM · #20
Originally posted by srdanz:
Unfortunately, this is not how it works in the states. You are not suddenly paying 3% more taxes if you earn that $1 that throws you in the higher bracket.

You pay e.g. 25% up to $xxx, and then for every dollar above $xxx you pay 28% only on the ($actual - $xxx) amount.

That is valid for all brackets. 15% on everything from $b1 to $b2, 21% (or whatever the next rate is) on the amount on top of $b2 up to $b3, then the next percentage (28% ?) on the over $b3 etc.


I did not know that, thanks.
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