advertisement

Couple weighs paying off home vs. tax deduction

Q. We have a 5 percent mortgage on our house, and my husband wants to pay it off. I feel this is a wrong move because we deduct the interest payments on our income tax return, which saves us on income taxes. We've been going back and forth on this. What do you advise?

A. It's never worth spending a dollar just to get 28 cents back. That's more or less what you're doing when you make mortgage payments and then take a deduction on your tax return.

Money that you use to pay off a 5 percent loan will be, in effect, earning you 5 percent. Income tax considerations do change that figure, but not by much. As rates go these days, it's a great return, and it's risk-free, guaranteed.

I don't know the state of your finances, or what you folks would do with the money otherwise. If it's in a savings account, right now it's earning a very small rate of interest. Unless you want it for an emergency fund, using it to pay off the loan could be a good investment.

Q. When I sold my condo the agent introduced the idea of "points," saying it is common. So some points were included in the final deal. But the commission was charged on the full asking price. When I mentioned this, my broker (who I know well) took the loss herself. I thought that the $200 should have been split with buyer's agent, but she said, "That's the way we do it," or something to that effect. So my broker bore the brunt of the gimmick.

This was an inexpensive condo. Was I out of line?

A. I haven't seen your listing contract, but it probably stated that you'd pay commission on the sale price. And you did. So far, so good.

Then it sounds as if the purchase offer included you paying some of the buyers' closing costs, in this case the "points." Those costs were extra upfront interest the lender charged them, just one time at closing, as a condition of making the mortgage loan.

In accepting the offer you agreed to help with closing costs because otherwise the buyers couldn't - or wouldn't - go through with the deal. Many mortgage plans do allow sellers to cover some expenses for borrowers who may be short on cash. Those points then became part of your closing expenses. If you itemize on your tax return, you can take the $200 as a deductible mortgage interest payment.

Yes, closing expenses mean that you didn't really walk away with the amount of the full sale price. But those points were your courtesy to the buyers. In theory that had nothing to do with sale price or the broker's commission. The money went to the lender, not to your agent. And you agreed to pay those "points."

Your broker, who gave up and just bore the cost, is evidently a good friend, if not a good explainer.

Q. How is square footage determined? The original building specs of my two-bedroom condo indicated it was 2,280 square feet when built in 2014. The property has been sold twice since then. When I called the town assessor's office they told me their records indicate the condo is 2,430 square feet, and that I am being taxed on that measurement. But no additions have been added to the condo. Who should I contact to get accurate square footage?

A. Square footage is determined from outside measurements. This seemed unfair when I owned a little cobblestone schoolhouse with 3-foot-thick walls, but it's what my property taxes were based on.

There should be drawings in the homeowners association office in your town hall. There should also be a survey from one or both of the previous sales. You might try taking what documents you have to the assessor's office to see how they compare. In any event, that's the right place to discuss the problem.

Q. I own a one-family house, and I'm thinking of renting out my empty bedrooms with kitchen privileges, etc. But what about discrimination laws? Would they be the same for me as for any landlord?

A. When you're renting out your own home there are some exceptions to both federal and state anti-discrimination laws. Federal authorities say you may discriminate on the basis of gender, children, religion, profession, marital status or age. The problem is that you're not allowed to advertise your preferences, and a licensed broker cannot be involved. No exceptions apply to the matter of race.

That said, state anti-discrimination laws vary, and I don't know where you are located. Before you start renting, you'd better look into this locally, and consult your town hall or city hall to learn any zoning restrictions that might apply to your one-family dwelling.

• Contact Edith Lank on www.askedith.com, or 240 Hemingway Drive, Rochester NY 14620.

© 2016, Creators Syndicate

Article Comments
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the "flag" link in the lower-right corner of the comment box. To find our more, read our FAQ.