Home Mortgage Credit

647 Words Mar 3rd, 2014 3 Pages
Mortgage interest deduction I. Facts
Home mortgage is any interest you pay on a loan that is secured by your home. The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. The mortgage interest deduction is an itemized deduction that allows homeowners to deduct the interest they pay on a loan used to build, purchase, or make improvements on their principal residence. This deduction can also be used on loans for second residences and vacation residences, but there are certain limitations. II. Research Issue
The home mortgage interest rate deduction is a popular tax deduction, but it doesn’t provide a benefit to every taxpayer. I decided to research how the mortgage interest
…show more content…
Mortgage interest is often one of the largest expenses taxpayers face and deducting it is oftencited as a financial incentitive to buy a home. As appealing as this is taxpayers must first look at the standard deduction amount based on their tax filing status. For example, Max is filing single so his standard deduction would be $5,800. The same as if he was married and filing separately. If he was married and filed “Married filing jointly” the deduction would be $11,600. If Max and Anna do not have deductions that add up to more than the standard deduction amounts they will not itemize, which eliminates the mortgage interest deduction option benefit. If Max Cruz are does itemize his deductions will get pennies on the dollar for interest paid. Unlike a credit, which provides a dollar-for-dollar reduction on actual tax amounts owed, the mortgage interest deduction reduces the amount of income subject to the tax rate. For example, if Max spends $12,000 on mortgage interest and has an income tax rate of 35%. He would be permitted to exclude $12,000 from income before taxes, resulting in a savings of $4,200 IV. Fiscal Cliff
The “Fiscal Cliff” has become the popular term used to describe the approaching problem the government will face at the end of 2012, when the Budget Control Act of 2011 is scheduled to take effect. At midnight on
Open Document