Many homeowners are able to deduct the amount of mortgage interest they pay on Schedule A of their tax returns. This deduction reduces the amount of income that is actually taxed by the IRS. Interest can be deducted in the year it is paid. So, by making your January payment in December, you will be able to deduct that interest on this year’s taxes.
A couple of things to consider before you make your January payment early:
1) Not all people can deduct their mortgage interest on their taxes. The IRS offers this flow chart to see if your mortgage interest is deductible: Is My Home Mortgage Interest Fully Deductible?
2) Some tax filers are subject to an Alternative Minimum Tax (AMT) which reduces deductions allowed. This may limit the effect of paying your January payment early.
3) Only your January 2013 payment may be deducted if paid in December 2012 – this is because the interest due on your January payment is actually interest accrued during December 2012. If you try to pay February or other months
early, it will be considered pre-paid interest which is generally not deductible.
4) If you intend to pay your January payment in December, it is a good idea to get it in early. With the holidays and the end-of-the-year rush, lenders are extremely busy. You want to make sure there is enough time for them to receive your payment and post it before the end of the year.
5) By paying your January 2013 payment in 2012, you will not be able to deduct the interest on next year’s taxes.
I am not a tax professional—please do not take this as tax advice. It is simply one strategy to increase your deductions for 2012. Please consult your accountant or tax professional before undertaking this or any other strategy. If you do not have a tax professional and are looking for one, I have worked with many over the years that are experienced professionals who can help you make the decisions that are right for you. I would be happy to refer you to them.
I can be reached at BarkerLoans@gmail.com with any questions you may have or if you are in need of financing assistance. Please go to www.BarkerBlog.com for more mortgage and housing related information. On Facebook you can find me at www.facebook.com/BarkerBlogCom.