Misunderstood the mortgage interest deduction

[EstimateMe]

So, I was thinking we'd finally be able to start deducting mortgage interest since we've owned a home since June. Up until now, the only "interest" deduction I had was student loan interest.

Everybody in the world told me "You'll be able to deduct mortgage interest come tax time." I did a little googling, and it looked great.

Except now, I REALIZE THAT IT IS ONLY DEDUCTIBLE IF YOU ITEMIZE YOUR DEDUCTIONS. I thought it would be like our student loan interest where it was deductible along with the standard deduction. I assumed it was this way because EVERYONE was saying it was deductible. Coworkers, parents, real estate agent, mortgage lender. A couple of Joe Blow middle class coworkers without kids (we don't have any either) were saying "Oh, you'll get such a tax break with the new house).

And since we don't even have a full year of interest, we can't even take advantage of real estate taxes paid, closing costs, and other fees that I had planned on deducting.

After a bit of googling, it looks like the government had floated the idea of turning the interest deduction into a mortgage interest tax credit. Any updates to this?

I've got nobody to blame but myself, but I'm just shocked that everyone around me said it was deductible, when it looks like, after googling, nobody with ~$150k houses actually benefits from this.

 

[IronWing]

Welcome to modest housing. We were able to benefit from the mortgage tax deduction the first year of our mortgage but not since as we didn't buy a very expensive house so the standard deduction is a better deal. One benefit is that we can file the 1040EZ (not really a benefit as every year I run the numbers through the 1040 just to make sure).

 

[AnonymouseUser]

Itemize already!

 

[EstimateMe]

Yeah I wasn't even looking forward to a huge refund, just wanted to not owe anything. Now, we'll be paying maybe a grand (stupid wife's work wasn't deducting enough and I didn't see here paystubs until recently).

 

[bctbct]

If you have a 30 year note and a 150K mortgage you should have enough interest to file long form(next year) unless you have a bunch of kids.

 

[EstimateMe]

Originally posted by: AnonymouseUser
Itemize already!

Don't have enough things.

~$4k in mortgage interest
~$1.6k in real estate tax
~$3k in valid closing costs (this year only)

I'm not to the $10,300 standard deduction.

HOWEVER...We've spent ~$5k in home upgrades since we've moved in, I park my work vehicle in the garage (where I also store a small inventory of work equipment) and work from home wi-fi a lot, so maybe I can get some of that back.

 

[hx009]

Originally posted by: EstimateMe
Except now, I REALIZE THAT IT IS ONLY DEDUCTIBLE IF YOU ITEMIZE YOUR DEDUCTIONS.

Wah. So itemize. Buy TurboTax or TaxCut if you're lazy. Fill in the screens using your tax forms and it does the rest.

nobody with ~$150k houses actually benefits from this

Yep, I sure hate getting $1000+ refunds because of my modest ~$130k house that I've had for barely four years.

 

[EstimateMe]

What am I missing here? What else can I itemize? I'm stretching to think of every last thing, the "work from home" rule might help a little

 

[DogFromDuckhunt]

Sounds like you talked to everyone about this EXCEPT an accountant! Next time check with your accountant, or at least call up a local CPA and ask them if they would be available to answer a few questions. Sure they'll probably charge you their hourly rate, but assuming you know what to ask and what kind of information you're looking for it should be a short phone call/meeting and if they're a good accountant they'll save you more than what the phone call cost you to begin with.

 

[OutHouse]

well your name is estameteme, so start estimating....

 

[AnonymouseUser]

Originally posted by: EstimateMe

Originally posted by: AnonymouseUser
Itemize already!

Don't have enough things.

~$4k in mortgage interest
~$1.6k in real estate tax
~$3k in valid closing costs (this year only)

I'm not to the $10,300 standard deduction.

HOWEVER...We've spent ~$5k in home upgrades since we've moved in, I park my work vehicle in the garage (where I also store a small inventory of work equipment) and work from home wi-fi a lot, so maybe I can get some of that back.

Pay January's house payment now.
Find more deductions.

 

[imported_mateo]

~$4k in mortgage interest
~$1.6k in real estate tax
~$3k in valid closing costs (this year only)

I'm not to the $10,300 standard deduction.

HOWEVER...We've spent ~$5k in home upgrades since we've moved in

I'm no expert but I believe you can deduct the $5k spent on home upgrades too (if direct upgrades to the home, not furniture etc). That puts you over $10,300 total...

 

[EstimateMe]

Originally posted by: AnonymouseUser

Originally posted by: EstimateMe

Originally posted by: AnonymouseUser
Itemize already!

Don't have enough things.

~$4k in mortgage interest
~$1.6k in real estate tax
~$3k in valid closing costs (this year only)

I'm not to the $10,300 standard deduction.

HOWEVER...We've spent ~$5k in home upgrades since we've moved in, I park my work vehicle in the garage (where I also store a small inventory of work equipment) and work from home wi-fi a lot, so maybe I can get some of that back.

Pay January's house payment now.
Find more deductions.

True, I'll be paying another house payment before 12/31, so that should add another $800 in interest. I can probably find some stuff to donate to GoodWill.

 

[AnonymouseUser]

Originally posted by: EstimateMe

Originally posted by: AnonymouseUser

Originally posted by: EstimateMe

Originally posted by: AnonymouseUser
Itemize already!

Don't have enough things.

~$4k in mortgage interest
~$1.6k in real estate tax
~$3k in valid closing costs (this year only)

I'm not to the $10,300 standard deduction.

HOWEVER...We've spent ~$5k in home upgrades since we've moved in, I park my work vehicle in the garage (where I also store a small inventory of work equipment) and work from home wi-fi a lot, so maybe I can get some of that back.

Pay January's house payment now.
Find more deductions.

True, I'll be paying another house payment before 12/31, so that should add another $800 in interest. I can probably find some stuff to donate to GoodWill.

Property taxes (automobile) may qualify also.

 

[bctbct]

Originally posted by: mateo

~$4k in mortgage interest
~$1.6k in real estate tax
~$3k in valid closing costs (this year only)

I'm not to the $10,300 standard deduction.

HOWEVER...We've spent ~$5k in home upgrades since we've moved in

I'm no expert but I believe you can deduct the $5k spent on home upgrades too (if direct upgrades to the home, not furniture etc). That puts you over $10,300 total...

I dont think you can deduct improvements unless they are energy efficient qualified items.

 

[CPA]

Originally posted by: EstimateMe

Originally posted by: AnonymouseUser
Itemize already!

Don't have enough things.

~$4k in mortgage interest
~$1.6k in real estate tax
~$3k in valid closing costs (this year only)

I'm not to the $10,300 standard deduction.

HOWEVER...We've spent ~$5k in home upgrades since we've moved in, I park my work vehicle in the garage (where I also store a small inventory of work equipment) and work from home wi-fi a lot, so maybe I can get some of that back.

Home upgrades - no, unless you paid it with an equity loan (then only the interest of the loan)
work vehicle - is this a company car? Then no, your work gets to expense that. If it's a personal car, then no, unless you are a sole proprietor then it's a Schedule C deduction.
wi-fi - possibly, but only to the extent that job related expenses exceed 2% of your AGI.

One thing you that could help you is the Sales Tax Deduction, assuming it get's re-upped this week. Even though you pay state income tax, you could elect instead to deduct your state sales tax. Use whichever is greater. You will either be able to deduct state and local sales tax or state and local income tax, whichever is greater.

Oh, and don't forget your charitable deductions less than $500

 

[imported_mateo]

Originally posted by: bctbct

Originally posted by: mateo

~$4k in mortgage interest
~$1.6k in real estate tax
~$3k in valid closing costs (this year only)

I'm not to the $10,300 standard deduction.

HOWEVER...We've spent ~$5k in home upgrades since we've moved in

I'm no expert but I believe you can deduct the $5k spent on home upgrades too (if direct upgrades to the home, not furniture etc). That puts you over $10,300 total...

I dont think you can deduct improvements unless they are energy efficient qualified items.

Yep, upon further research I am wrong

 

[CPA]

Originally posted by: bctbct

Originally posted by: mateo

~$4k in mortgage interest
~$1.6k in real estate tax
~$3k in valid closing costs (this year only)

I'm not to the $10,300 standard deduction.

HOWEVER...We've spent ~$5k in home upgrades since we've moved in

I'm no expert but I believe you can deduct the $5k spent on home upgrades too (if direct upgrades to the home, not furniture etc). That puts you over $10,300 total...

I dont think you can deduct improvements unless they are energy efficient qualified items.

That's a credit, though, not an itemized deduction. And it's rather small.

 

[bctbct]

medical costs exceeding a certain percentage of your income is also deductible.

 

[imported_mateo]

Can always donate to charity to put you over the limit. Could do the math and see if it yields more money in the end to donate and get the return vs not donate.

 

[EstimateMe]

thanks CPA, yes it is a work provided sedan. Didn't know if since it was parked in my garage if I would be able to get some sort of break for that. I DO store inventory for work in my garage so I don't have go drive to our work storage site all the time, and I have a work provided printer in my home office. I sit in the home office A LOT doing paperwork (~3 hours a work day), and one of the forms on the IRS website looked like it had some massive formula to figure out if I could deduct any of that.

Looks like $500 is the MAX for charitable contributions? Church giving along with stuff given to Goodwill?

For the sales tax deduction...would I need every receipt of every single thing I've purchased this year to get this?

 

[3NF]

Put money into an IRA
Pay some extra mortgage payments

Refi with a higher interest rate

 

[EstimateMe]

Okay, sorry for all the questions, just kind of edgy now...

Could the following be itemized.....yes/no answers would rule

1. $120 in supplemental life insurance paid with aftertax dollars
2. $50 in spousal supp life insurance
3. $150 worth of long term disabilty paid with aftertax dollars
4. $150 worth of prepaid legal services with aftertax dollars
5. $600 in leased car deductions (have a company car but employer takes this out of my aftertax dollars)
6. I THINK my wife had her wisdom teeth removed this year and we paid ~$300 or so maybe towards it (insurance covered the rest).

 

[AndrewR]

Originally posted by: EstimateMe
Looks like $500 is the MAX for charitable contributions? Church giving along with stuff given to Goodwill?

I think the rule is anything OVER $500 (ie., first $500 has no benefit, but after that is deductible). Could be wrong -- my mother-in-law is a tax accountant so I don't do my own taxes!

 

[DogFromDuckhunt]

Originally posted by: bctbct
medical costs exceeding a certain percentage of your income is also deductible.

They must exceed 7.5% of AGI, and you must deduct your reimbursements from the amount you paid out as well. IE - you Pay $1000 for a prescription and your insurance reimburses you $700, only $300 would be available for the deduction (and even then, you have to exceed the 7.5% hurdle rate). You lump all medical expenses into one large sum (Dental, Eye, etc.)

Originally posted by: EstimateMe
thanks CPA, yes it is a work provided sedan. Didn't know if since it was parked in my garage if I would be able to get some sort of break for that. I DO store inventory for work in my garage so I don't have go drive to our work storage site all the time, and I have a work provided printer in my home office. I sit in the home office A LOT doing paperwork (~3 hours a work day), and one of the forms on the IRS website looked like it had some massive formula to figure out if I could deduct any of that.

Looks like $500 is the MAX for charitable contributions? Church giving along with stuff given to Goodwill?

For the sales tax deduction...would I need every receipt of every single thing I've purchased this year to get this?

You could potentially deduct a certain percentage of the depreciation of the room you work out of in your house, but in all likelyhood you won't be able to. The room must be used solely for home office work (you aren't supposed to even let your kids in there to watch tv or anything).

The max for charitable contributions is actually 50% of AGI (rest can be carried forward 5 years) and for anything over $250 you must have the receipt from the charitable organization (anything over $500 but less than $5000 and you may be required to show additional information).

I really can't emphasize enough how much you should go talk to a CPA. Get a few recommendations from family/coworkers and call around. Right now CPA's are gearing up for the tax season so they shouldn't be TOO busy, but come January things will start to get a little hairy.