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Cut Your Tax Bill With An Early December Mortgage Payment
Staff - Mortgage Lenders Plus.com
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A little year-end attention to your mortgage could snag an extra break on the home loan deduction for the year. If you are used to renting, the mortgage payment pattern will seem backwards. While a rent payment pays for the upcoming month, your mortgage payment pays for the month preceding. Thus your January first mortgage payment is for the premium covering the preceding December – the final month of the tax year.
If you get your payment in by year’s end, the mortgage interest deduction should be credited to the old year and not the new. This applies even if your standard payment date is January one – just get it in a few days earlier. You don’t want to cut this one close, though. If the check goes in the mail, toss it in with your Christmas cards in order to insure that it arrives at your lender by year's end. If you pay online, be sure you make the electronic transaction in time to have it credited to your 2006 payment amount. That way, the added interest will show up on the annual statement detailing your home loan deduction activity that you receive from your lender.
The timing is critical because of the record keeping that tracks your payment activity. Get your payment to the bank by the last business day of the year and early enough so that it will be recorded as having been submitted on that day. If you do, the home loan deduction will show up on the lender's official paperwork. In turn, that means no flares will go up in an IRS tax examiner’s office because your deduction claim will parallel what the lender’s statement reflects.
If all proceeds properly, there will question any difference between the amount of mortgage interest deduction you claim on your Schedule A and what your lender reported (and copied to the IRS) on the 1098 form. If your year-end mortgage statement doesn't reflect the extra payment's interest, you are still free to deduct the correct amount on your tax return and attach a statement explaining why your number, not the lender's, is accurate.
Your property taxes may be paid through an escrow account held by the lender. But if you pay your property tax bill and it's due early in the year, consider paying it in December, too. As with your mortgage interest deduction this payment -- and deduction -- will be shifted into the present tax year.
You need to take into account your income level for this year and next, if you expect a major shift. You may want to time that extra deduction so that it’s available when you have a good income year. While an early payment will give you 13 mortgage interest deductions this year, it means that on your 2007 taxes you'll only have 11 (or 12 if you pay a little early next December, too). So before you send off that check, make sure you’re taking the deduction when it is going to give you the most relief.
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