Tax Considerations When Re-Financing
For many homeowners the key goals of re-financing are often paying
less in interest overall and reducing monthly payments. When a
homeowner is able to get a lower interest rate, there is usually the
opportunity to re-finance the mortgage to capitalize on the lower
interest rate. However, a lower interest rate does not automatically
translate to a savings. The homeowner must carefully consider the
amount of money they will be savings over the course of the loan in
relation to the amount of money they will be spending to re-finance
the mortgage. When the closing costs associated with re-financing
are larger than the savings, re-financing may not be warranted.
Re-financing can also have financial ramifications associated with
tax options.
Paying Less Interest Equals Less of a Deduction
In most times, homeowners are permitted to deduct the amount of
taxes they pay on their mortgage when filing their tax forms. This
is usually quite a substantial deduction for homeowners who owned
the home for the entire tax year. Those who re-finance their
mortgage will typically be paying less money each year in taxes on
the mortgage. While this is great in the long run, it can adversely
affect the homeowner’s tax return.
Consider a time where a homeowner is located just below a major tax
bracket which would be quite pricey for the homeowner. As all ready
discussed, re-financing may result in the homeowner paying less
money in taxes each year. This means the taxpayer will be able to
make a smaller deduction this year now fall above the tax bracket
they previously fell below. When this happens the homeowner may find
themselves paying significantly more in taxes.
Consult a Tax Preparation Specialist
Determining the exact ramifications of paying less interest on a
home mortgage on a tax return can be a rather risky. There are a
number of difficult equations involved which can make the apt to
make mistakes while trying to determine the consequences of paying
less in taxes on the mortgage. For this reason, the homeowner should
consult a tax preparation specialist when determining whether or not
re-financing is worthwhile because the tax specialist can provide
information regarding the impact of paying less in interest.
In selecting a tax preparation specialist, the homeowner should seek
the opinions of friends and family members if the homeowner does not
employ a specialist to prepare their own taxes. This can be helpful
because trusted friends and family members are only likely to
recommend professionals they feel were knowledgeable, trustworthy
and caring. A tax preparation specialists should have all of these
qualities but should also be well versed in the area of tax
preparation. This will enable the tax preparation specialist to make
all of the right decisions when considering the needs of the
homeowner.
Online Calculators
For homeowners who do not know a tax preparation specialist or for
homeowners who are unable to afford the consulting services of these
individuals, there are online calculators which homeowners might
find very useful. These calculators are readily available throughout
the Internet and can be used to determine the tax ramifications to
re-financing. These calculators ask the user to input specific
criteria then returns results regarding the amount the homeowner
will pay in taxes during the year if he refinances. Additionally the
homeowner can run these equations several times to consider a number
of different scenarios.
ABOUT THE AUTHOR
Bob Schwartz, is a Certified Residential
Specialist, CA licensed real estate broker with
www.Brokerforyou.com. Bob
has over 27 years of residential real estate experience, authored a
number of published articles and served as an expert witness for
San Diego lawyers. You can contact
Bob via e-mail at bob@brokerforyou.com or visit his highly popular
San Diego real estate website at:
http://www.brokerforyou.com
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