Early Mortgage Payment May Cut Taxes
As you prepare for the upcoming tax season, making your January mortgage payment early could lower your tax bill. Since mortgage payments are made at the end of occupancy periods (unlike rent which is paid in advance), the interest that is paid on the January payment is actually for December and can therefore be included in a tax deduction for this year.
In order to take advantage of this tax break, be sure you have the payment into your lender with plenty of time to spare in order for it to post to your account before the end of the year. This allows the lender to add it to your Form 1098. It also allows them to report it to the IRS so that both your tax return and the information provided from the lender reflect the same information.
Another tip to keep in mind is to pay your property tax early if it is due at the beginning of the year, in order to earn more tax savings. By paying the property tax early, the payment can be shifted into this tax year.
If you’re planning on making accelerated tax payments, make sure you fully understand the alternative minimum tax. This tax, originally designed to make sure wealthy filers paid their fair share, has found its way into the taxes of the upper middle-class. Although AMT should not be a problem for 2013 and future years, it should be considered when looking to make accelerated payments.
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