Claiming Home Mortgage Interest as a Tax Deduction, mortgage interest deduction.#Mortgage #interest #deduction


The Home Mortgage Interest Tax Deduction

Mortgage interest deduction

You ve probably heard that owning your own home comes with a few nice tax perks. One of them is that the interest you pay on your mortgage loan is tax deductible.

​Claiming Home Mortgage Interest

​You have to itemize your deductions on Form 1040, Schedule A to claim mortgage interest. Schedule A also covers many other deductible expenses, including real estate property taxes, medical expenses and charitable contributions.

​Sometimes these all add up to more than the standard deduction for your filing status, making it worthwhile to itemize. Otherwise, you ll save more tax dollars by foregoing the home mortgage interest deduction and claiming the standard deduction instead. Complete Schedule A and compare the total of your itemized deductions to your standard deduction to find out which method is most advantageous for you.

Here are a few other things about this deduction that you ll want to keep in mind.

Qualifying for the Mortgage Interest Deduction

Mortgage interest includes that which you pay on loans to buy a home, on home equity lines of credit and on construction loans. The deduction is limited to interest paid on your main home and/or a second home. Interest paid on a third or fourth homes isn t deductible.

​You must also be on the hook for the loan –​ the debt can t be in someone else s name unless it s your spouse and you re filing a joint return.

It must be a bona fide loan in that you have a contractual obligation to pay it back. Finally, your home must act as security for the loan and your mortgage documents must clearly state this.

​Your home can be a single family dwelling, a condo, a mobile home, a cooperative or even a boat –​ pretty much any property that has sleeping, cooking and toilet facilities, according to the Internal Revenue Service.

Determining How Much Interest You Paid

You should receive Form 1098, a Mortgage Interest Statement, from your mortgage lender at the beginning of the new tax year. The form reports the total interest you paid during the previous year. You don t have to attach the form to your tax return because the financial institution must also send a copy of Form 1098 directly to the IRS.

Make sure the mortgage interest deduction you claim on Schedule A matches the amount reported on Form 1098. The amount you can deduct may be less than the total amount that appears on the form based on certain limitations. Keep Form 1098 ​with a copy of your filed tax return for at least four years.

Dollar Limitations on Home Acquisition Debt

Home loans and the interest you pay on them are subject to some overall limitations. One limit applies to loans used to buy or build a residence.

This is home acquisition debt. The term refers to any loan you take for the purpose of acquiring, constructing or substantially improving a qualified home. You can t deduct interest on more than $1 million of home acquisition debt for your main home and/or your secondary residence. The limit is reduced to $500,000 if you re married and file separately.

For example, let s say you borrowed $800,000 against your primary residence and $400,000 against your secondary residence. Both loans were used solely to acquire the properties. Together, the loans add up to $1.2 million, exceeding the $1 million limit for home acquisition debt.

Now let s say that both loans have a fixed interest rate of 5 percent. The total interest you paid for the year was $60,000. You would only be able to claim a mortgage interest deduction for $50,000 of that, the interest on the first $1 million of home acquisition debt. The remaining $10,000 is the result of loan value that exceeds the $1 million limit so you can t claim it.

​Limitations on Home Equity Debt

A home equity debt is a loan you take out for a reason other than to acquire, construct or substantially to improve a qualified home.

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It may also be a loan you take to improve a qualified residence, but it exceeds the home acquisition debt limit.

You can t deduct interest on more than $100,000 of home equity debt for your main home and/or your secondary residence. This limit is reduced to $50,000 if you re married but filing separately. Your deduction for home equity interest may be reduced even below this $100,000 limit if your indebtedness exceeds the fair market value of your home.

Interest paid on home equity debt is an adjustment for the alternative minimum tax​, not so affectionately known as the AMT.

For this example, let s say you borrowed $300,000 in a home equity line of credit. The amount you borrowed did not exceed the fair market value of your home so you re OK there. You used $150,000 of the money to add a new family room to your residence, and you spent the remaining $150,000 on your son s college tuition. Half the loan is treated as home acquisition debt because it was used to substantially improve your home. This portion would be subject to the home acquisition debt limitation. The other half is treated as home equity debt because it was not used to improve your home. You would be able to deduct interest only up to the $100,000 limit on this portion. So assuming you paid a total of $21,000 in interest, it would break down like this:

  • $10,500: Fully deductible home acquisition debt on the first half the loan
  • ​$7,000: Deductible home equity debt on two-thirds of the home equity portion of the loan or $100,000 of that $150,000 portion
  • ​$3,500: Non-deductible home equity debt representing the interest paid on the portion of the home equity debt that exceeded $100,000

You d also have to report the $7,000 to the IRS as an AMT adjustment on Form 6251.

Joint Mortgages

If you jointly hold the mortgage with someone else who s not your spouse, you re entitled to deduct only the interest that you personally pay regardless of which of you receives Form 1098 from the lender. But there s a loophole here. Co-borrowers who make payments to prevent foreclosure can deduct the interest paid even if the interest was supposed to be paid by someone else. The editors of JK Lasser s Your Income Tax pass along this tip:

The Tax Court has allowed a joint obligor to deduct his or her payment of another obligor s share of the mortgage interest if the payment is made to avoid the loss of property, and the payment is made with his or her separate funds. (page 328)

Home Construction Loans

You can deduct interest on mortgages used to pay for construction expenses. The proceeds must be used to acquire the land and for construction of the home. Expenses incurred in the 24 months before construction is completed count toward the $1 million limit on home acquisition debt.

But there s a catch. If you deduct interest on a construction loan for two years, then you decide to sell the property rather than move in and use it as your residence, you may have to restate your returns for the years you deducted the interest to characterize it as investment interest instead.

This can limit its deductibility. In other words, the IRS may want some money back.

Points Paid

Points paid on acquisition debt for primary and secondary homes are fully deductible in the year they re paid, but points paid on refinancing must be amortized over the life of the loan. Points aren t always reported on Form 1098, but you might find them on your HUD-1 closing statement.

When to Seek the Help of a Tax Professional

Figuring out the home mortgage interest deduction is straightforward for many taxpayers. Add up the interest reported on your Forms 1098 and enter the total on Schedule A. You can use the worksheet in Publication 936 to calculate your allowable deduction, and you can figure the AMT adjustment for home equity debt using the Home Mortgage Interest Adjustment Worksheet found in the Instructions for Form 6251.

You might want to check with a tax professional, however, if you bought or sold property during the tax year. In fact, it would make sense to seek the advice of a tax pro even before you buy or sell real estate if only to get a handle on the tax consequences of your decision.


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Highest Tax Saving Bank Fixed Deposit Rates 80C – October 2017, interest rate.#Interest #rate


Highest Tax Saving Bank Fixed Deposit Rates U/S 80C October 2017

Tax Saving Fixed Deposits one of the most popular way to save taxes u/s 80C of income tax. These are like normal Fixed Deposit with banks but is labeled as “Tax Saving FD” while making the deposit.

Why you Should Invest?

  1. Convenient to invest. ICICI Bank, SBI, HDFC Bank, etc offers online facility for Tax Saving FD
  2. Redemption on maturity comes directly to your bank account
  3. High Safety FD up to Rs 1 Lakh is insured

Why you Should Not Invest?

  1. There are lot of competing products like EPF, PPF, ELSS to exaust the investment of Rs 1.5 Lakh u/s 80C
  2. The interest earned is taxable
  3. Cannot be withdrawn prematurely
  4. Cannot be pledged to secure loan or as security

Tax Saving Fixed Deposit Interest Rate

Bandhan Bank and Bank of India have reduced their interest rates (compared to last month) on tax Saving FDs.

Also State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore have merged with State Bank of India effective April 1, 2017.

As of September 4, 2017 banks are offering 6.00% 7.20% for general public and 6.50% 7.70% for Senior Citizens.

  1. The best Tax Saving Fixed Deposit Interest offered is 7.20% for General Public byThe Ratnakar Bank and IDFC bank
  2. The best Senior citizens Tax Saving Fixed Deposit Interest offered is 7.70% by The Ratnakar Bank and IDFC bank
  3. 5 Year NSC at Post Office gives 7.8% interest for both Senior Citizens and general public

The table below lists the banks in alphabetical order with their respective interest rate offer on Tax Saving FDs for General and Senior Citizens.

The highest Interest Rates have been highlighted :

Taxation TDS Tax Saving Fixed Deposits:

The interest received on tax Saving Fixed Deposit is fully taxable. The interest income is considered as income from other sources for Tax filing and taxed at marginal tax rates applicable.

TDS would be deducted at the rate of 10% of the interest paid, if the interest paid exceeds Rs 10,000 in a financial year. You can see the same in Form 26AS.

In case your income does not exceed taxable slab and so want to avoid TDS, you can submit Form 15G or 15H when making the deposit. You would also need to submit the form at the start of every financial year to the concerned bank branch.

Key Points – Tax Saving FD:

Below are some of points to keep in mind while investing in Tax Saving Deposits:

  1. As the Tax Saving FD scheme was introduced in Budget of 2006, it s also known as Tax Saving Deposit scheme 2006 (Notification Number 203/2006 and SO1220 (E) dated 28/07/2006)
  2. Most of the banks accept deposit of 5 Years only. However there are banks with deposit tenures of more than 5 Years
  3. You can deposit on either Single or Joint name. However benefit of tax deduction is available for first holder only.
  4. Most banks offer interest rate which is similar to their 5 years term deposits. Only a few banks give slightly higher interest rate for their Tax Saving Fixed Deposits
  5. Most banks give Senior citizens and their staff members additional interest of 0.25% to 0.5%
  6. Depositor can opt for either cumulative or non-cumulative way of crediting periodical interest
  7. Don’t be mislead by banks advertisements about their yield on Tax Saving FDs. Those are manipulative calculations
  8. Be cautious of small co-operative banks as they have higher risk than bigger private and public sector banks
  9. Depositor gets benefit U/s.80C of the Income Tax Act. 1961
  10. Minimum deposit is Rs.100 and in multiples thereof
  11. Maximum deposit in a Financial Year Rs.1,50,000/- [i.e., 1st April to 31st March of the following calendar year]
  12. Deposits cannot be withdrawn prematurely
  13. Deposits cannot be pledged to secure loan or as security

Disclaimer: We have tried to keep interest rates up to date, but as these change frequently you are advised to check with the bank before investing. Also it would be great if you can point out any errors through comments or email!

Direct link for Interest Rates on FDs of Banks:

Below is the direct link for Interest Rates of Major Banks. You might want to check the interest rates before doing your FD.


CBC News – Interest rates are about to go up in Canada – no, for


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Bank of Canada may hike interest rate for 1st time in 7 years next week

Posted:Jul 03, 2017 5:00 AM ET

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The Bank of Canada has held its benchmark rate steady since September 2010. Chris Wattie/Reuters

Related

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After almost a decade of warnings that never came to pass, it appears as though the Bank of Canada is ramping up to hike its benchmark interest rate — possibly as soon as next week.

On July 12, Canada’s central bank will announce its latest decision on where to place its trend-setting interest rate, which has an impact on the rates that Canadian borrowers and savers get for their bank accounts, mortgages and other products.

Eight times a year, the bank’s board of governors meets to assess the latest economic indicators and decide whether Canada’s economy needs a shot in the arm from a rate cut, or a pump of the brakes by way of a hike.

And for the first time in 54 such meetings, it’s looking like the latter is in order.

It’s not like there haven’t been warning signs. By the time Stephen Poloz was named to replace Mark Carney atop the bank in 2013, the central bank had already been on the sidelines for more than two years, its benchmark interest rate set at one per cent.

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Since Stephen Poloz, right, took over the helm of the Bank of Canada from Mark Carney, left, in 2013, the bank has yet to raise interest rates. (Adrian Wyld/The Canadian Press)

But even as the bank kept loans cheap coming out of the financial crisis, the messaging from the top came early and often that Canadians should be forewarned — rates have to go up eventually.

As far back as 2014 Poloz warned Canadians that rates would rise “soon” — before oil’s plunge in 2015 caused the bank to lose its nerve. Instead, the central bank moved in the opposite direction, cutting rates twice that year to bring its rate to 0.5 per cent, where it currently sits.

At the time, those hikes were described as a temporary measure to help a Canadian economy that had been waylaid by an oil price that lost more than 70 per cent of its value in a matter of months. But in recent weeks the bank has started leaving clear signals that despite oil still being in the $40-per-barrel range, those temporary conditions are over and it’s time for a return to normalcy.

It started on June 12, when senior deputy governor Carolyn Wilkins told a Winnipeg audience that Canada’s economy was starting to “pick up” and was showing signs of “moving past” the oil shock.

That prompted speculation that the bank was ready to take its foot off the gas, a notion that was reinforced by a number of pronouncements since then. Poloz told U.S. financial network CNBC this week that “those cuts have done their job.” That may not sound like a ringing endorsement, but economists who monitor the bank say it marks a sea change in messaging.

“If they think those cuts have done their job,” BMO economist Doug Porter told CBC last week, “now they can reverse them.”

He’s not the only one who expects a rate hike. It would be “imprudent to ignore the aggressive communication shift we have seen from the Bank of Canada,” Manulife’s senior economist Frances Donald said.

Since Wilkins’s speech started the speculation, the bank has had more than one chance to walk down those expectations, if it felt her comments were misinterpreted. The fact that the bank hasn’t done so speaks volumes, Donald said.

Currently, bets on the bond market imply there’s about a 60 per cent chance of a rate hike next week, something the Canadian economy hasn’t seen since September 2010.

While nobody’s expecting anything more than a slight 25-point ratcheting-up of the rate to 0.75, the symbolism of such a move is huge. Spurred on by cheap lending and housing prices that have been defying gravity for the better part of a decade, Canadians are now more in debt than ever before.

Technically, the Bank of Canada’s mandate is to manage inflation, not worry about debt loads. But a major move to interest rates would be catastrophic with debt loads sitting so high, which is why the bank seems to be warning borrowers that they’re going to slowly start taking away the punchbowl from homebuyers who’ve overindulged.

As BMO economist Benjamin Reitzes put it, the “desire to instill a bit more discipline in the housing market,” is clearly in the back of the central bank’s mind while telegraphing their change of heart.

Scotiabank economist Derek Holt is among those who thinks a hike is coming next week, and maybe even another one before the year is out. Otherwise its own pronouncements may have painted the bank into a corner, he says.

“The Bank of Canada is going to have a serious credibility problem if it fails to raise interest rates … after providing such an aggressive turn in communications starting one month to the day ahead of the July meeting,” Holt said.


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Current Interest Rates on Home Loans, Savings, Car loans – CD Rates, interest rates.#Interest #rates


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Financial Advice

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November 14th 2017

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November 10th 2017

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How To Calculate Mortgage Payments – Interest and Mortgage Formula Calculation, calculate mortgage interest.#Calculate #mortgage


How To Calculate Mortgage Payments

Copyright 2014 by Morris Rosenthal

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Interest and Mortgage Formula Calculation

If you loaned a bank $100,000 at a 5% interest rate, compounded annually, the bank would pay you $5,000 per year. So why can’t you get a $100,000 mortgage and pay the bank $5,500 a year, let them earn a 10% profit? The reason is that traditional mortgages are designed so you end up owning the house when the mortgage is paid off. Our simple example above would apply to an “interest only” mortgage, where you are really just renting the house from the bank. After 30 years, zero equity. It’s the reverse of your loaning $100,000 to the bank and earning $5,000 per year in interest. The bank doesn’t get to keep your $100,000, they’re just paying for the use of it. In essence, the bank is renting the principal from you, the same way you rent a house from the bank with an interest only mortgage.

The next complication in mortgage interest rate calculations is that interest is compounded. Going back to our loaning the bank money example, lets say you agreed to loan the bank $100,000 for 10 years, with the interest being compounded onto the principal annually. Using simple interest compounded annually, the situation would look like this.

So after 10 years, the principal has grown by over 50%, from $100,000 to $155,132.84. The amount of interest you are earning every year has also grown over 50%, even though the interest rate is fixed, at 5% compounded annually. In order to illustrate the effect compound interest has on mortgage payments, let’s turn the simple ten year loan into a mortgage, where you are working to pay off the principal so that you can own the house. If you were only willing to pay $5,000/year, you’d never make a dent in the principal, so it would be an interest only mortgage. But let’s say you were willing to pay $6,000/year. That comes to $500 a month, but since we’re keeping it simple and only compounding interest once a year, there’s no reason to track the monthly payments. Since the interest gets added back onto the principal at the end of every year, principal goes down very slowly. The mortgage payments would look like this:

So, after ten years you’ve paid the bank $60,000 on your $100,000 mortgage, and you still owe them $88,973.43. That’s the compound interest the bank is charging fighting against your payments, and the only way to pay less interest in the long run is to pay more per year. Lets say you were willing to pay $12,000 per year, or $1,000 per month. Would that get the mortgage paid off in ten years?

So, after ten years you’ve paid the bank $120,000 on your $100,000 mortgage, and you still owe them another $22,814.05, but at least the end is in near, and in another two years the loan will be paid off.

With mortgages, we want to find the monthly payment required to totally pay down a borrowed principal over the course a number of payments.The standard mortgage formula is:

M = P [ i(1 + i) n ] / [ (1 + i) n – 1]

Where M is the monthly payment. i = r/12. The same formula can be expressed many different way, but this one avoids using negative exponentials which confuse some calculators.

For our $100,000 mortgage at 5% compounded monthly for 15 years, we would first solve for i as

i = 0.05 / 12 = 0.004167 and n as 12 x 15 = 180 monthly payments

Next we would solve for (1 + i) n = (1.004167) 180 using the x y key on the calculator, which yields 2.11383

Now our formula reads M = P [ i(2.11383)] / [ 2.11383- 1] which simplifies to

M = P [.004167 x 2.11383] / 1.11383 or

M = $100,000 x 0.00790 = $790.81

All of the rounding down I did makes a 2 cent difference on the monthly payment, compared with keeping all the digits the calculator can handle. Now, one important feature of the mortgage formula is that it’s the principal is multiplied last, meaning that we can develop a table of mortgage rate multipliers for any fixed time period that will yield a monthly payment simply by multiplying the principal borrowed.

If you’re curious to know how much interest you’d pay the bank over the course of the mortgage,just multiply the amount of the monthly payment by the number of payments and subtract the principal:

($791.81 x 180 ) – $100,000 = $142,525.80 – $100,000 = $42,525.80

The only bright side to paying the bank all of that interest is that in most cases, it’s deductible on your Federal income tax in the in the years that it’s paid. The savings to you depends on what tax bracket you’re in. If you’re only in the 10% tax bracket to start with, you’re only getting a 10% discount on your taxes for carrying a mortgage. If you’re in the 25% tax bracket, you’re getting a 25% discount.

If you want to skip the formula and just read your monthly mortgage payment from a table, I’ve created fixed rate mortgage tables for 15 and 30 year mortgages, covering rates from 4.0% to 5.95%. Note, I use the same numbers from this page in my amortization formula example.