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They say that only two things in life are certain: death and taxes. What is not certain is how much taxes a person will pay. When it comes to Federal Income Taxes, the bite can be substantial. The top income tax bracket whacks taxpayers for a full 35% of their taxable income. The only way to pay less taxes is to take full advantage of every available tax deduction.
Unfortunately, despite the claims of numerous books, infomercials, and websites, there are surprisingly few income tax deductions that can be used by most taxpayers who are not in a special situation such as owning a business, running a farm, or having substantial trust or investment income. Many things that are technically tax deductible are not of much use to most taxpayers because a specific minimum or floor must be met before these things become viable tax deductions. For example, while medical expenses can be tax deductible, that is only true for the amount of doctors bills that exceed 9% of your income. In other words, unless your medical bills were huge, there is no deduction for you.
The good news is that there are several substantial tax deductions available for taxpayers who own real estate. The government continues to encourage home ownership by Americans via several substantial tax deductions. Most people are aware that the interest on a mortgage is tax deductible for most people, for example. In addition, on new mortgages, any points paid on the loan are deductible as well.
Less well known is the property tax deduction. Deducting money paid for taxes is one of the most commonly sought after tax deductions by people seeking professional tax advice from an enrolled agent, Certified Public Accountant (CPA) or other tax professional. The desire is not hard to understand. It seems very unfair to have to pay taxes on money that was already used to pay taxes. When it comes to property taxes, the tax code agrees.
Some taxpayers miss deducting property taxes on their income taxes because they forget about paying them. This is because many mortgages are setup with an escrow account where the bank or lender holds funds to pay things like homeowners insurance and property taxes on behalf of the borrower. The homeowner pays an extra amount each month as part of their required monthly payment. These extra monies are held in the escrow account until it is time to pay for a designated expense. While the mortgage company writes the check to pay the property taxes on a home, it is using the borrower’s money to do so, thus the deduction belongs to the home owner not the bank.
Where To Deduct Property Taxes
To deduct property taxes, fill in the appropriate amount on the IRS Form Schedule A (Itemized Deductions). Deduct your property taxes on Line 6 (Real Estate Taxes). For home owners who pay their property taxes via an escrow account through their mortgage company, the total taxes paid is generally included on the Form 1099-INT sent out by the lender. For home owners who pay property taxes themselves, it may be necessary to review financial records to find the amount. Keep in mind that many states, cities, and counties require payment of real estate taxes twice per year, so be sure to count both payments to avoid only deducting half of the amount actually paid.
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Source by Brian E Nelson