Monday, October 29, 2007

Refinance your mortgage and have a higher tax bill?

I live in an apartment, so I don't have a mortgage. But I imagine if I did and I had a crappy interest rate that I would want to refinance into a better interest rate.

Apparently that can have some negative repercussions. According to an article on MSN, if you don't follow some little-known rules for calculating your home mortgage deduction, you can be writing off too much interest. Instead of saving on taxes, you could wind up owing them.

Two thoughts: Yikes! and Why?!?

Apparently, only the interest on your original mortgage balance, plus an additional $100,000, qualifies for a deduction.

And it seems that lenders are not telling consumers about this. And to pour salt into the wound, so to speak, banks send customers a Form 1098 early in the new year, which most use to prepare their taxes. This document shows total interest paid for the year, and doesn't take into account the refinance. So, people blindly use this number when they do their taxes.

I bet a LOT of people are doing this incorrectly. Then they probably get audited and owe a ton of money. IRS- grrrr.

1 comment:

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