How ‘Mortgage Interest Deductions’ Affect Tax Refunds?
There is little doubt that taxpayers are always on the lookout for ways that would reduce their burden of tax amount and thus get back the maximum tax refund. A majority of tax payers can claim tax deduction by way of interest paid towards mortgages. The government permits mortgage tax reduction as one of standard deductions and taxpayers must take that into account while filing their annual tax return.
Assessing the amount of refund
You are eligible for refund of income tax in case you happen to have paid more money than you were obliged to pay as tax. For instance, in case your employer deducted $8000 towards federal taxes but in fact you were to pay only $5000, you can claim and get a refund amounting to $3000. Getting a refund doesn’t imply that the government would pay you the amount, it simply indicates that you paid in excess of what you were required to pay and are getting back that excess amount now.
How deduction towards mortgage interest does affect?
While claiming deduction towards mortgage interest, you need to list your deductions that entail you giving up claims for standard deductions. Here are the rates for standard deductions for the year 2010:
For singles——————- $5,700.00
For Household heads—— $8,400.00
For couples filing together–$11,400.00
When deductions towards mortgage interest along with other deductions recorded in your claim are more than the standard tax deduction, your listing allow you save additional money on taxes payable. On enhancing your claims for deduction towards income tax, your assessable income for that year is reduced and that decreases your tax liability, leading to bigger tax refund or reduced tax bill at least.
The maximum deduction that you may claim towards interest paid on mortgage is only on the interest you paid for the first one million dollars, the figure gets reduced to half a million dollars if you are married and filing individually. How much tax you finally save is dependent on which tax bracket you fall into. The higher the tax bracket you fall into, the more is tax saving! Suppose, you were falling in tax bracket of twenty percent and subtracted $6,000 towards interest on mortgage, your refund goes up by $1,200 but if you happened to be in tax bracket of thirty percent, the figure for refund goes up to $1,800.
In case the only listed deduction in your claim is towards the interest given on mortgage, your tax refund stands to get affected only by that sum by which the interest deduction goes beyond the standard deduction. For instance, when you are entitled for standard deduction of $8,400 but you claim for $10,000 towards interest on mortgage, and no other deduction is listed, your taxable income will reduce by $1,600. Nonetheless, on listing your deductions, you become eligible for claiming all listed deduction as applicable in your case, like local and state taxes and permissible donations, allowing you to get enhanced refund.