Filing taxes can be tricky. The tax code is complicated, laws change every year, and loopholes seem to be closing rapidly. You want to get the most you can in a refund, or at least, owe the lowest amount possible. No one likes to write a check in April, but fear of an audit may discourage you from taking all the deductions you are entitled to. Scouring the IRS.gov website, studying the complicated language of the tax code that may relate to your taxes, is not your idea of a fun activity and can be overwhelming.
We have saved you time by covering key deductions involving debt that you need to know.
Debt That is Tax-Deductible
Interest on your home mortgage is deductible if you itemize. Generally, homeowners have enough deductions to benefit from itemization, partly because of the home interest deduction. This deduction includes property taxes, points paid at the time of purchase, mortgage insurance premiums, and interest paid on debt directly related to your primary residence. Home owner’s insurance is not deductible, however, the insurance premiums charged when there is less than 20% equity, does exist. If you have a mortgage, you will receive an ‘Annual Tax Interest Statement’. This form will include interest paid, points, mortgage insurance premiums (PMI), and real estate taxes paid through escrow. Escrow accounts pay taxes before the end of the year. Without an escrow, you must have personally paid the taxes before December 31, in order to qualify for the property tax deduction. Interest is deductible for mortgage balances up to one million dollars. Any interest on balances above this threshold does not qualify.
Additional mortgages on a primary residence such as equity lines of credit or second mortgage carry the interest deduction. Vacation homes may also qualify based on whether or not the property was rented. Investment property carries expense deductions that are taken in a different section of the return. Second mortgage interest is limited to balances of $100,000 or less, and can be included regardless of what the funds were used for. The related IRS publication can be found here: https://www.irs.gov/publications/p936/ar02.html.
Interest on student loans that have been repaid during the year is deductible. The deduction is limited to $2,500 in interest payments. Incomes restrictions for this deduction cap out for singles at $80,000 and for married filing jointly at $160,000. This deduction directly reduces your income and does not require itemization. The related IRS publication can be found here: https://www.irs.gov/publications/p970/ch04.html.
Credit card interest paid for business expenses is the only qualifying credit card interest that is deductible. Consumer purchases on high interest cards do not receive any tax benefit. Full time and part time self-employment qualifies, providing you tracked expenses and can prove the charges were for business purposes. The cards should be held in the business name and paid from a business checking account. Co-mingling funds could void the deduction.
Debt that is resolved for less than the full balance could result in the discharged portion being taxed as income. This includes forgiven, settled, or negotiated debt where less than the full amount was paid. Collateral debt such as a foreclosure or repossession, that sold lower than the outstanding balance could also be included. Not all companies report discharged debt as income, however receiving a 1099-C means the income was reported to the IRS, and must be included on your return. Under certain circumstances, you may receive a waiver, which would eliminate any tax liability from the discharge. Qualifications for the waiver can be found at http://financesolutions.org/1099-c-settled-debt/.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you're just not seeing your balances go down, call Timberline Financial for a FREE financial analysis today. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don't have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website here http://timberlinefinancial.com/contact-us/