Do you own a home for which the mortgage is more than $ 1 Million?
If yes then it is a wise idea to check how much mortgage interest you have been deducting from your tax returns over the past few years. All homeowners who owe more than a million dollars on their home loans have come under the scanner of the IRS. The scrutiny has been taken up over confusion on the mortgage interest that customers are eligible to deduct from their tax liability. Taxpayers who owe more than $ 1 million on their homes could range from tens to thousands. For a mortgage of $ 1 Million, the interest could add up to about $50,00o. This amount being substantial has been of great interest and a matter of concern to the IRS department.
Tax rules vary for home acquisition debts and home equity debts. Let me describe each of these in detail. Home acquisition loans are availed to acquire, construct or renovate a qualified property. This kind of loan is secured by the home. In the case of Home Equity Debt, it is like any other loan and even here it is secured by the home.
Now here comes the catch. While a section of taxpayers argues that it was legal to deduct all interest on a single mortgage of up to $1.1 million, others opposed the claim stating that the limit for mortgages was $1 million, but interest could also be deducted on an additional $100,000 in a home equity loan. In order to end this confusion IRS had set the record straight by stating that loans over and above $1 million could also qualify as home equity obligations.
While the confusion over the interest deductible has been solved for the time being these rules could be very confusing to the common man who cannot afford to seek the opinion of a tax advisor. When customers avail of a home loan, it is not the loan alone but there are other surrounding components that get added to the loan. One of the important aspects of a home loan is the refinancing option. While IRS has not specified how such complex cases need to be dealt with, there have been a lot of homeowners who have been pulled up during mini-audits conducted by the IRS. In the past six months alone, IRS has notified a number of people that their mortgage interest write-offs are being scrutinized.
As per the existing tax rules, tax deduction on mortgage interest is allowed on the first and second home but not on homes exceeding two in number. While the rules are clear cut and comprehensive in a lot of situations there are certain circumstances where the rules are not clear and exhaustive.
Are you still confused about your tax liability even after reading this article? If yes, then it is advisable to get help from a qualified CPA in order to avoid complications at a later date during an IRS audit.