Tax Info Blog

How to Deal with Mortgage Points

Q: Can I deduct points I have on my mortgage?
Scott

A: It depends.  If the mortgage point is used to buy or build a main home, then you can probably deduct the point on your Schedule A (Itemized Deductions) in full.  If the point is paid for virtually any other purpose (refinancing, home equity loans and lines of credit, second homes, rental homes, etc.) then it must be amortized ratably over the term of the mortgage it is connected to.  This is done on a monthly basis.  So, if you have a 15-year mortgage, that's 180 months.  If you get the mortgage in September, you can deduct 4/180ths of the point value the first year, and 12/180ths in future years until you've exhausted it.

For more on this topic, consult IRS Publication 936, Home Mortgage Interest Deduction

401(k) Growing Pains

Q: I became a partner in a 5-partner LLC this January. We have one employee. We are thinking about creating a company-sponsored 401(k) plan, but are concerned that the partners' contribution limits will be affected by how much profit sharing the employee gets. What exactly are the rules here, and is the profit-sharing contribution limit for my individual 401(k) also affected by this?
Christian

There are two issues here: your own eligibility to make individual 401(k) contributions, and what to do with the employee...

Economic Stimulus Rebates and Widows

Q: My father passed away in 2007.  His wife is a widow.  In normal circumstances she could file a married filing jointly return for 2007.  Can she do that and be eligible for the decedent's $600 economic stimulus credit?
Dennis

A: The first point is that a joint return can and usually is filed the year that one spouse dies.  The occupation of the spouse that year is "deceased."

All that is needed to qualify for the $1200 rebate (assuming tax liability and earnings limit thresholds have been met) is the filing of a joint return.  This woman is eligible for the full $1200.

Tax Season Hiatus

See you on the other side of April 15th.  Happy tax prep.

Bipartisan Housing Tax Cut Announced

Late yesterday afternoon, Senate bipartisan leadership announced new tax cut plans as part of a housing package.  Specifically:

1. Businesses will be allowed a four-year NOL carryback for losses incurred in 2008 and 2009, but only if they waive 179 expensing and bonus depreciation
2. Homeowners who don't itemize their deductions will be allowed to deduct up to $500 in property taxes ($1000 MFJ).  Interestingly, this deduction won't be allowed for taxpayers living in jurisdictions that raise property taxes for the rest of this year
3. A new $7000 tax credit (spread over 2008 and 2009) for homes purchased in 2008 which were in foreclosure