Columbia SC mortgage tax deductions could be going away, all thanks to Congress’s new federal debt ceiling plan.
The compromise legislation created an unusual mechanism — an evenly split, 12-member bipartisan supercommittee — that could call for major cutbacks on real estate write-offs by Thanksgiving. All it will take is a single vote by a lone senator or House member who breaks with his or her party to put the mortgage interest deduction into serious play.
The legislation signed by the president Aug. 2 calls for a two-step increase in the federal debt ceiling plus spending cuts of about $917 billion. It also created the Joint Select Committee on Deficit Reduction to slash an additional $1.5 trillion from the deficit over the coming decade.
The committee is required to vote on a plan to achieve these objectives by Nov. 23, using revenue increases, spending cuts or a combination. If the committee members cannot agree on a plan, or if either chamber of Congress votes it down, automatic and severe spending cuts of $1.5 trillion will be imposed equally on the Department of Defense and domestic programs including Medicare provider payments.
After decades of being considered politically protected, why are Columbia SC mortgage write-offs suddenly on the chopping block? Sheer size is the No. 1 reason. The congressional Joint Committee on Taxation estimates that the home mortgage interest deduction will cost the federal government $100 billion during fiscal 2011 and $107.3 billion in 2012. Between 2008 and 2012, the cumulative write-offs for mortgage interest are projected to total just under half a trillion dollars.
Defenders of the write-offs argue that high levels of homeownership are essential to economic growth and social stability and fully justify the tax system preferences they receive. National opinion polls regularly find widespread support for the write-offs, even among renters.
Critics, on the other hand, consider the write-offs inherently unfair, saying they’re skewed to benefit upper-income owners disproportionately.
Where is all this headed? Columbia SC mortgage write-offs could be in greater political jeopardy in the next three months than they’ve been at any time in the past 25 years. Stay tuned to our blog and we’ll keep you updated on where all of this may shake out, and just how it may affect your Columbia SC mortgage write-offs.
Owners of most Columbia SC second homes will not be affected by the new 3.8 percent tax on some investment income that will take effect in January 2013. The new tax will hit those taxpayers with adjusted gross incomes over $200,000 a year ($250,000 for married couples filing jointly).
Adjusted gross income is the number at the bottom of the front page of Form 1040. It includes dividends, interest capital gains, wages and retirement income, plus results from partnerships and small businesses. It does not include itemized deductions such as mortgage interest and charitable gifts or personal exemptions.
The new tax was passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Obama’s health care and Medicare plans. It was recently upheld in a controversial ruling by the Supreme Court.
Columbia SC second homes that are not rented out and used only as a second residence have always been subject to capital gains tax on any gain. Also, gain is a net number. It is not simply the difference between the original purchase price and the eventual sales price. Homeowners can subtract real estate commissions, excise tax, and capital improvements before arriving at a net figure for capital gains purposes. If the home is not rented out and thus not an “investment property,” it is ineligible for a tax-deferred exchange.
A person’s primary residence still retains its favored status — even for those who have high incomes. The new “Medicare” tax still won’t apply to the first $250,000 on profits from the sale of a personal residence — or to the first $500,000 in the case of a married couple selling their home. The entire exemption on the sale of a primary residence remains intact and can be claimed every two years.
Unless you have significant income ($200,000, or $250,000 for married couples filing jointly), you, along with 97 percent of the U.S. population, will pay no additional tax on a Columbia SC second home in 2013.
Even though tax day is still more than 2 months away, it’s never too early to start gettin yourself organized and ready to file, so you’re not one of the millions of procrastinators who wait til the last minute to file, or have to file an extension because you just weren’t ready.
This is one in a series of occassional articles about your taxes. For other tax related articles, click the “Taxes” Category to the right to see our full list of tax related content and tips.
1. Know your filing status — If you’re single, you can’t declare on your tax forms and returns that you are married nor can you claim someone as a dependent who isn’t. Unfortunately, tax forms including W-4 forms are sometimes incorrect. These forms should reflect your tax status as of December 31 of the filing year, and should be reviewed by you annually. Your marital status may have changed as might the number of dependents you have.
2. Keep your receipts — Receipts are important and should be kept on hand, offering proof of purchases made or donations given. If donating to a charity, you’ll want to get a receipt from that organization showing the items you donated. You may be able to value these gifts yourself too.
3. Use tax prep software — There are a number of tax preparation software programs available for you including TurboTax, TaxACT, Tax Cut and Tax Works. Such programs are inexpensive and can be ordered online and downloaded to your computer. Unless you’re using the services of a tax prep professional, these programs are an excellent alternative and can save you money.
4. Take a loss — Stocks or bonds that are performing poorly may not be worth holding onto. If you anticipate that you’ll lose money on the sale of such investments, take the loss and show it on your income taxes. That loss will reduce your tax burden. You can reduce it further by donating your investments to an eligible charity. Note: In order to take a loss for last year, the loss must have been recorded last year. You can’t sell poorly performing stocks or bonds now, or you’ll have to claim them NEXT year when you file for this tax year.
5. Fund your retirement plan — If you have a retirement plan, the funds you contribute are generally not taxable until you begin to make withdrawals. See your financial advisor to discuss options that are available to you. Prepare for the future and keep your money out of the hands of the federal government.
6. File on time or obtain an extension — Failing to file on time can lead to serious consequences. If for some reason you can’t finish your taxes by April 17 (you get two additional days this year), request an automatic 6-month extension to October 15. Whatever money you owe the IRS still has to be paid by April 17th, but the later filing deadline can buy you some much needed time as you finish gathering your documents.
We’ll have more tips on taxes as we get closer to filing time in April. Stay tuned!
Is it better to get a big tax refund or change your W-4 withholdings and risk a tax bill? Kiplinger has the answer…
Do you look forward to a big tax refund every year, or do you end up paying more in taxes? We’d love to hear from you. Just click the link below and sound off. Remember, your email address will NEVER be published along with your comments.
With Chirstmas coming on fast, taxes are probably not first and foremost in your mind right now, but there are some smart moves you can make between now and the time the big ball drops in Times Square that will make a real difference with it comes time to deal with the IRS next April.
Go to the Doctor
Spend all the money in your health savings and dependent care accounts before the end of the year. If you don’t use the HSA balance, you lose it, and money left in a dependent care account gets added back to your taxable income.
Health savings accounts allow you to avoid federal income tax by earmarking in advance up to $3,050 for singles or $6,150 for families for medical expenses, according to HSA for America. Pre-tax money goes into the account, and interest on it accrues tax-free. Another benefit of medical health savings accounts: portability. Your account goes where you go — which is no small matter in this economy.
Among the many things you can spend HSA money on: dental work, eyeglasses, hearing aids, contact lenses, over-the-counter drugs and visits to the chiropractor. Long-term care premiums can also be paid for from an HSA, up to $260 for those under age 40, $490 if you’re between 41 and 50 years, and up to $2,600 if you’re 61 years or older, according to HSA for America.
Take Income Later, Deductions Now
Postponing income is a smart strategy when your financial situation is changing and you know your tax bracket will be lower next year. So if you’re lucky enough to be getting a bonus this year, consider deferring it until 2012, if your boss is willing. Or, if you own a business, hold off on billing customers until after Dec. 31. And wait to sell any stocks or investments that will hit you with capital gains until the new year.
If you expect to be in a higher bracket next year, figure out if you can pay certain bills early to allow you to claim larger deductions now. Also, consider if items like the child tax credit, higher education tax credit, the above-the-line deduction for higher-education expenses or deductions for student loan interest would be phased out at your higher 2012 income level.
If you make your January 2012 mortgage payment early, you can get the deduction for it in 2011. See if you can pay any property taxes early as well. If necessary, use your credit card to prepay 2012 expenses to capture the expense in 2011.
Don’t Rush to Sell that Losing Investment
At the end of the year, investors who have realized capital gains typically look to sell losing positions to offset them. This year, your thought process may need to be different. If you’re in the 15% tax bracket (up to $69,000 of taxable income for married couples, and up to $34,500 for singles) your long-term capital gains included in that amount are taxed at 0%. So think twice about selling a losing position just for the purpose of offsetting gains. Unless you have a sound investment reason to sell the losing position you will be losing the tax benefit of the capital loss. You can’t reduce a 0% tax bite!
But if you do decide to sell a losing position, be mindful of capital gains distributions from mutual funds. Equity markets have been volatile recently, which may lead to above-average trading activity and larger-than-expected capital gains distributions. Most funds release estimated gains distributions in November or December, which provides ample time for investors to harvest losses, if possible.
Hopefully these tips, along with the other tax tips we provided here last month, will help you come tax time. If you’d like to search more tax information on our site, just look in the “Taxes” Category to the right.