How to Estimate Mortgage Tax Refunds
There are several deductions that are allowed by the Internal Revenue Service (IRS) when you are getting ready to file your annual income tax return at the end of each year.
If you fall into a higher tax rate, the more you will save on your taxes.
Your tax deduction should be taken into consideration when you are determining the amount you can afford to invest in home ownership.
If you look closely at your mortgage repayment terms and analyze the total payment, you will see that in the beginning the greater part of the payment goes toward interest repayment.
As you make your payments on a monthly basis your loan begins to mature which means that the portion of the payment allocated to interest decreases.
I have broken down your calculations into four moderately easy steps: Step One: You need to look on the form 1098 that you get from your mortgage lender each year for the total amount of interest paid during the tax year.
Step Two: You can figure your marginal income tax rate by adding your federal rate to your state rate.
As an example, I randomly selected these rates: A federal marginal rate in the 26% bracket plus a state marginal tax rate in the 5% bracket will give a combined total of 31%.
Step Three: In order to convert your percentage rate to a decimal, you will need to divide your results by 100.
Using the example in step two, you would use 100 divided into 31 to show a decimal of 0.
31.
Step Four: The final easy step is to multiply your decimal results in step 3 by your total marginal tax rate in step two.
The result will give you the amount of deduction that you can claim on your income tax return.
If your form 1098 lists $13,000 as the amount of interest you paid, then you will multiply this figure by your 0.
31 decimal in step three.
$13,000 X 0.
31 = $4,030.
This is your tax savings for your mortgage interest paid in the tax year.
Using these four easy steps will help you be able to estimate the portion of mortgage tax refunds that you should be eligible for on this year's tax returns.
This can be done in January right after you receive your 1098 from your lender.
They are required to send it to you by the end of January.
If you fall into a higher tax rate, the more you will save on your taxes.
Your tax deduction should be taken into consideration when you are determining the amount you can afford to invest in home ownership.
If you look closely at your mortgage repayment terms and analyze the total payment, you will see that in the beginning the greater part of the payment goes toward interest repayment.
As you make your payments on a monthly basis your loan begins to mature which means that the portion of the payment allocated to interest decreases.
I have broken down your calculations into four moderately easy steps: Step One: You need to look on the form 1098 that you get from your mortgage lender each year for the total amount of interest paid during the tax year.
Step Two: You can figure your marginal income tax rate by adding your federal rate to your state rate.
As an example, I randomly selected these rates: A federal marginal rate in the 26% bracket plus a state marginal tax rate in the 5% bracket will give a combined total of 31%.
Step Three: In order to convert your percentage rate to a decimal, you will need to divide your results by 100.
Using the example in step two, you would use 100 divided into 31 to show a decimal of 0.
31.
Step Four: The final easy step is to multiply your decimal results in step 3 by your total marginal tax rate in step two.
The result will give you the amount of deduction that you can claim on your income tax return.
If your form 1098 lists $13,000 as the amount of interest you paid, then you will multiply this figure by your 0.
31 decimal in step three.
$13,000 X 0.
31 = $4,030.
This is your tax savings for your mortgage interest paid in the tax year.
Using these four easy steps will help you be able to estimate the portion of mortgage tax refunds that you should be eligible for on this year's tax returns.
This can be done in January right after you receive your 1098 from your lender.
They are required to send it to you by the end of January.
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