Quick action by homeowners can trim upcoming tax bill
Homeowners who quickly pay their next mortgage or property-tax bill can save hundreds or even thousands of dollars when they file their return with the Internal Revenue Service in April.
Q. I received my property-tax bill a few weeks ago and already paid the first half installment of $1,432. But if I also this month pay the second installment of $1,432 that's due in April, can I deduct the full amount ($2,864) on my next income-tax return?
A. Yes. The IRS allows you to deduct your property taxes on the return you file for the year in which you pay them. So, even though your second installment isn't due until the spring, you would be able to write off the entire $2,864 tax bill on your 2010 return if you pay the installment now.
The same rules apply to deductions for mortgage-interest payments.
These IRS rules allow many homeowners and rental-property investors who have been fortunate enough to make lots of money this year to reduce or delay paying income taxes on their earnings.
Let's say that you are one of the relatively few American homeowners who got a bonus from his or her employer this year. The bonus was $5,000, and you are in the common 25 percent federal income-tax bracket.
Because you have already paid the first half of the property taxes this year, you are entitled to a deduction that will trim $358 from your upcoming income-tax bill ($1,432 times .25 equals $358). But if you instead use part of that $5,000 bonus or other earnings to also pay your second installment now, you would double the savings on your 2010 return to $716 instead of having to split it between the return that you'll file next April and the 2011 return that you will complete the following year.
The same strategy works if you can afford to pay your January home-loan payment now. The mortgage-interest portion of next month's loan could be deducted on your upcoming return if you pay it immediately, rather than waiting for the savings to kick in when you file your 2011 tax return in the spring of 2012 nearly 15 months from now.
The IRS offers several free publications that explain the details. Call the agency at (800) 829-3676 for brochures or visit the agency's website, www.irs.gov. Also consult with an accountant or other tax expert.
If you decide that it would be wise financially to make next year's property-tax or mortgage payments now rather than later, you should get the check in the mail immediately or hand-deliver it to the local assessor's office or bank branch. If you don't, the assessor or lender might not be able to process the check until January, which means you won't get to take the deductions until you file your 2011 income-tax return in 2012.
Q. Is it true that a federal law prohibits lenders from evicting foreclosed borrowers during the holiday season?
A. There's no such law, but many lenders voluntarily suspend such evictions from mid-December through the first week of the New Year.
There are two primary reasons for this common practice. First, despite how many consumers feel, most lenders really do have a heart and don't want to wreak havoc on families during this joyous time of the year. And second, holiday evictions can generate bad publicity: The last thing a lender wants to see on the nightly news is footage of one of its foreclosed borrowers and his or her kids being kicked into the snow on Christmas Eve.
Q. I already know that I can sell my own home without having a real estate license, because I have done it before. Now I have inherited my late brother's small home that's a few blocks away through the living trust he created about four months ago. I would like to sell it myself, too, but would I have to get a sales license first? I wonder, because the trust is a legal document and the property is not my personal residence.
A. No, you won't be required to get a sales license. Your late brother's home now belongs to you, so you can sell it yourself, hire an agent to market it for you or simply rent it to tenants for some extra monthly income.
Your brother was wise to form an inexpensive living trust. That thoughtful action allowed his home to pass quickly to you instead of making you suffer through the long and costly probate court proceedings that would have been required if he had made only a will.
Ÿ For the booklet “Straight Talk About Living Trusts,” send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
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