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Should you get a tax refund if you pay $6,000 a year in interest for your mortgage? |
When my husband did our taxes this year, we owed $90. My friend told me that the first year you own a house you get a really good tax refund because of all the interest you pay. Is this true? Should I look into this to see if we can get some money back? You get a deduction for the interest if you itemize your deductions. With only $6,000 in interest deductions you'd need over $4,000 in other itemized deductions to make itemizing deductions worthwhile. For 2007, the combined standard deduction for a married couple filing a joint return is $10,700. If your itemized deductions are less than that you'll do better taking the standard deduction. It's very common to not have enough interest expense in the year that you close, especially of you close later in the year. Whether or not you get a refund depends upon your tax liability and how much was withheld from your wages. Having to pay $90 is an ideal situation, actually. It's not a large amount, it doesn't attract any penalties or interest for underpayment of taxes, and it ensures you the largest possible paycheck throughout the year. I would much rather owe on April 15th than get a refund. I hate making interest-free loans to the government! Yes, you should look into it. Your refund depends on your combined income and number of exemptions as well. You do get a nice tax break for all the interest you paid, but it is really dependent on a lot of other things. If you are claiming a lot of deductions at work and not paying that much in taxes, you will still owe. If you have a high income you will still owe. It is dependent on a lot of factors. If you don't trust your husband I would check with an accountant. You should check into it. There are many factors in the amount of tax you owe. Yes, you do get a big tax break for the interest you pay on your mortgage. You also get a tax break if you have kids thanks to the child credits. However, there are other factors. Like are you paying in enough from your payroll deductions and what bracket are you in? But, in general if you are paying a lot of interest on your home it should give you a sizable credit. I would have a professional look over your return. If there's an error they can have it amended. And if it's right, they can explain to you what happened. If you paid mortgage interest, you report what you paid on Schedule A - Itemized Deductions along with the other things that you get to deduct on there (medical expenses, state or sales taxes, real estate taxes, personal property taxes, charitable contributions, miscellaneous itemized deductions). If your itemized deductions in total are greater than your standard deduction, than you itemize, if not then you take the standard deduction. Yes, by all means check into this. Usually when you own a house and have a mortgage you are more than likely to be able to itemize. Just to let you know though, medical expenses have to exceed 7.5% of your AGI and misc itemized deductions have to exceed 2% of your AGI for the excess to be deductible. Not necessarily. It is a common misconception that you get a big tax break in the first year of owning a house. In fact, it is common to have absolutly no tax break at in the first year of owning a house due to the increase in standard deduction for married couples. Your friend has misinformed you. Whether or not you get a refund depends on what you paid in. A refund is just giving you back what you overpaid for withholding. It's easy to get a huge refund. Just have an extra $100 a week taken out of your paycheck over what you expect to owe. Then when you file, that's $5200 you get refunded to you. Sound like a good deal? I didn't think so. Everyone gets a standard deduction without having to prove anything or show receipts. In 2006 that was $10,300 for a married couple filing jointly - it goes up a little each year. If you can show that you paid more than that in deductible items (and mortgage interest is one of the deductible items) then you would "itemize", and your tax bill would be less than if you had taken the standard deduction. Typically the difference is in the hundreds, not thousands, of dollars. If you didn't itemize, then you might check it out to see if you had deductions adding up to more than the standard. If you did, you can amend your return and maybe get some money back. Download 1040 schedule A and instructions at irs.gov to see what items are deductible. If you just took the standard deduction, and by itemizing come up with $12,300 in itemized deductions, then you'd probably get around $300 back. Good luck. |
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