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CGassist.168, Accountant

Category: Capital Gains and Losses

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Experience: Tax Accountant

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I SOLD A VACANT LOT IN MAY 2015,I ORIGINALLY PURCHASED A

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I SOLD A VACANT LOT IN MAY 2015,I ORIGINALLY PURCHASED A BUILDING ON THE LOT IN JULY 2007. DUE TO A FIRE, AND MORTGAGE BEING UNDER WATER I WASN'T ABLE TO MAKE OUTRIGHT WHOLE SALE (TO SATISFY THE DEBT) UNTIL MAY OF 2015. FOR THE TAX YEAR 2015, I RECEIVED A MORTGAGE INTEREST 1098 FORM IN THE AMOUNT OF $267,000. I AM TRYING TO DO MY TAXES USING ONLINE, BUT AS I DO MY RETURN, I WOULD ASSUME, I SHOULD SEE SOME BENEFIT FROM THE MORTGAGE INTEREST BUT IT IS NOT GIVING A REFUND. -AM I NOT ELLIGIBLE FOR THE DEDUCTION ? -IS THERE A LIMIT ? -OR COULD UTILIZE DEDUCTION OVER SEVERAL TAX PERIODS - I.E 2015, 2016...ETC ? -ON AVG, WHAT % OF THE DEDUCTION WOULD I ANTICIPATE BACK ? 50% AT LEAST ? -IF I COULD TAKE THE DEDUCTION DO I HAVE TO MANUALLY ADJ THE 1040 FORM ?

In order to claim the mortgage interest deduction, one must itemize. Not that the mortgage interest deduction is quite misunderstood by many. The mortgage interest deduction reduces taxable income, but it does not necessarily result in a refund. A tax deduction such as mortgage interest reduces your taxable income, not your tax bill directly. The tax reduction from a deduction is the amount of the deduction times your marginal tax bracket. For example, if you claim $10,000 in mortgage interest and you are in a 30 percent tax bracket, the interest deduction would reduce your tax bill by $3,000. The fact that mortgage interest can be deducted on your tax return lowers the net interest cost by the amount of the taxes saved.

In addition to the information provided previously, there is an income phaseout for claiming mortgage interest. SEE BELOW:

If you have an adjusted gross income of over $166,800, your mortgage interest starts to get phased out. For every $100 of income over $166,800 you lose $3 of itemized deduction X 33.3% up to a maximum loss of 80 percent of your itemized deductions. Talk about another overly complicated rule the IRS/government has implemented!

Example: You make $266,800 and you have $50,000 in mortgage interest deductions. Take $266,800 – $166,800 = $100,000. Then take $100,000 X 3% = $3,000. Finally, take $3,000 X 33.3% = $999. You can now only deduct $49,001 ($50,000 – $999) from your income instead of originally $50,000.

Okay thanks To make it a little more realistic, my AGI (Adjust Gross Income for 2015 is $64,270. ) Even it i could say, you only get back 30% of the mortgage interest = which would make it roughly $80,100 My current tax software is saying my tax refund will be roughly 17k..... but i have 3 rental properties and a small travel business with a few deductions. But i would expect more north than just the $17k.And if i go thru the calculations below... 64,270 - 267,000 (mortgage interest) = - 202,730 x 3% = - 6,081.9 x 33.3% = 2,025.= - 200,730is it that my AGI is significantly low, and mortgage interest is excessively large that some manual adjustment has to be made on top of something ? Or in your opinion refund will not be significant ?Regards, Carl

I assume that you selected itemized deductions over standard deductions. I looked at the document, I don't see anything wrong with the numbers. Without prepping a mock return, I can't tell you if the refund amount is correct or not.