People told me that getting a house was great in part cause of tax breaks, but standard deduction is bigger so?
by Mortgage Rates on Saturday, November 13th, 2010 | 4 Comments
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You must not be paying very much interest, if your standard deduction is larger than your mortgage interest.
If so, consider yourself lucky that you got such a good deal on the price of your house.
It would all depend on your filing status and standard deduction. The standard deduction keeps going up, so many times there is not enough itemized deductions to go higher. One suggestion is to keep good record of charitable contributions. When you take items to Goodwill or such a place, make a good list of what you are taking. There are valuations charts on their websites that you use to value the items you are donating. Always keep your receipts. This is a way you could help increase the itemized deductions to hopefully exceed the standard deduction.
I am sending a link to the IRS Sch. A instructions that may give you more insight into other items you can itemize. As for the interest on the mortgage, it does seem wrong, but that is the way it is.
I just hope this gives you some good ideas on how to optimize your itemized deductions
Laura H – H&R Block – Senior Tax Advisor 5
**This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided.
Did you remember to take a deduction for real estate taxes? Your home mortgage is amortized over 25 or 30 years, therefore very little is being paid on the principle. In the first years the payments are almost all interest, but at the end it is almost all paid against the principle. Car loans are amortized over five years and that makes a difference.
There’s only a tax break if you have a big enough mortgage or pay enough property tax to exceed the standard deduction. During the first year of ownership, especially if they bought the house late in the year, many people don’t meet that. After the first year, most people probably pay enough to itemize.
Interest is calculated each month on the remaining balance, so it’s higher at first while your balance is higher, before you have paid some of it off. If you take a loan with simple interest, where the interest paid is calculated as the amount borrowed, times the interest rate,, times the number of years, the true rate is much higher than the stated rate since you are paying the interest rate on the whole amount borrowed even after you have much of it paid off.