Mortgage Principal Prepayments crate a los on a rental property?
nick...@gmail.com
or take a grand. But Iw as thinking what if I made a few extra
mortgage payments, applied them to principal, before year's end and
then book a larger loss than I might have ordinarily. Can I do this?
Limits?
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Bill Brown
> I have a rental property that pretty much breaks even each year, give
> or take a grand. But Iw as thinking what if I made a few extra
> mortgage payments, applied them to principal, before year's end and
> then book a larger loss than I might have ordinarily. Can I do this?
> Limits?
Payments of loan principal are not deductible. Therefore, making a few
extra mortgage payments would not lower your taxable income.
nick...@gmail.com
> On Dec 16, 11:39�pm, "nickra...@gmail.com" <nickr...@gmail.com> wrote:
>
> > I have a rental property that pretty much breaks even each year, give
> > or take a grand. But Iw as thinking what if I made a few extra
> > mortgage payments, applied them to principal, before year's end and
> > then book a larger loss than I might have ordinarily. Can I do this?
> > Limits?
>
> Payments of loan principal are not deductible. Therefore, making a few
> extra mortgage payments would not lower your taxable income.
If I make 12 extra payments before the end of the year, can I use that
addtional mortgage interest as an expense to calculate profit and loss
on the proprty for the current tax year?
Just to be clear, I am not looking to deduct principal; I am looking
to enlarge a tax-deductibe loss on a rental property for a given year.
Bill Brown
> On Dec 17, 3:49�pm, Bill Brown <brow...@longwood.edu> wrote:
>
> > On Dec 16, 11:39�pm, "nickra...@gmail.com" <nickr...@gmail.com> wrote:
>
> > > I have a rental property that pretty much breaks even each year, give
> > > or take a grand. But Iw as thinking what if I made a few extra
> > > mortgage payments, applied them to principal, before year's end and
> > > then book a larger loss than I might have ordinarily. Can I do this?
> > > Limits?
>
> > Payments of loan principal are not deductible. Therefore, making a few
> > extra mortgage payments would not lower your taxable income.
>
> If I make 12 extra payments before the end of the year, can I use that
> addtional mortgage interest as an expense to calculate profit and loss
> on the proprty for the current tax year?
>
Prepaid interest is not deductible, even by a cash-basis taxpayer,
until it accrues.
Stuart A. Bronstein
> Bill Brown <brow...@longwood.edu> wrote:
>> "nickra...@gmail.com" <nickr...@gmail.com> wrote:
>>
>> > I have a rental property that pretty much breaks even each
>> > year, give or take a grand. But Iw as thinking what if I made
>> > a few extra mortgage payments, applied them to principal,
>> > before year's end and then book a larger loss than I might
>> > have ordinarily. Can I do this? Limits?
>>
>> Payments of loan principal are not deductible. Therefore,
>> making a few extra mortgage payments would not lower your
>> taxable income.
>
> If I make 12 extra payments before the end of the year, can I
> use that addtional mortgage interest as an expense to calculate
> profit and loss on the proprty for the current tax year?
If you make extra payments then your total interest for the year
will actually be lower, not higher. So your deduction will be
lower. This is because when you make a greater principal payment
than scheduled, the interest for the following month will be less
than it would have been (because the principal it is calculated on
is lower).
Doing that can significantly reduce your total interest costs over
the life of the loan. But it won't increase your deductions.
--
Stu
http://downtoearthlawyer.com
John Levine
>addtional mortgage interest as an expense to calculate profit and loss
>on the proprty for the current tax year?
Unless you have a very peculiar mortgage, extra payments are credited
entirely to principal. The interest due each month is based on the
outstanding principal that month, so the more you prepay, the less
interest you will owe and the more of each payment that is credited
to principal.
Prepaying is a fine way to pay off your mortgage, but there's no way
to increase the interest you pay short of refinancing with a larger
balance or higher rate.
R's,
John
removep...@yahoo.com
> On Dec 17, 11:18�am, "nickra...@gmail.com" <nickr...@gmail.com> wrote:
>
> > > Payments of loan principal are not deductible. Therefore, making a few
> > > extra mortgage payments would not lower your taxable income.
>
> > If I make 12 extra payments before the end of the year, can I use that
> > addtional mortgage interest as an expense to calculate profit and loss
> > on the proprty for the current tax year?
>
> Prepaid interest is not deductible, even by a cash-basis taxpayer,
> until it accrues.
Prepaid interest is deductible in full the year you purchase your
home, or use the loan to improve your home.
Wallace
<removep...@yahoo.com> wrote in message
news:973373f0-321f-4d8a...@13g2000prl.googlegroups.com...
> On Dec 17, 8:23 am, Bill Brown <brow...@longwood.edu> wrote:
>> On Dec 17, 11:18 am, "nickra...@gmail.com" <nickr...@gmail.com> wrote:
>>
>> > > Payments of loan principal are not deductible. Therefore, making a
>> > > few
>> > > extra mortgage payments would not lower your taxable income.
>>
>> > If I make 12 extra payments before the end of the year, can I use that
>> > addtional mortgage interest as an expense to calculate profit and loss
>> > on the proprty for the current tax year?
>>
>> Prepaid interest is not deductible, even by a cash-basis taxpayer,
>> until it accrues.
>
> Prepaid interest is deductible in full the year you purchase your
> home, or use the loan to improve your home.
I'm not sure what you are trying to say here, but:
"Prepaid interest. If you pay interest in advance for a period that goes
beyond the end of the tax year, you must spread this interest over the tax
years to which it applies. You can deduct in each year only the interest
that qualifies as home mortgage interest for that year. However, there is an
exception that applies to points, discussed later. " Pub 17; Pub 936.
Bill Brown
>
> I'm not sure what you are trying to say here, but:
He's talking about points to buy down the interest rate on a home
mortgage that qualifies as acquisition indebtedness. It is an
exception to the general rule you quoted.
taxxcpa
> I have a rental property that pretty much breaks even each year, give
> or take a grand. But Iw as thinking what if I made a few extra
> mortgage payments, applied them to principal, before year's end and
> then book a larger loss than I might have ordinarily. Can I do this?
> Limits?
>
---
effect at all. If it weren't the end of the year, it would actually
reduce your loss because it would reduce the deductible interest.
If you have hopes of ever paying off the mortgage, then paying extra
principal could save you a lot of interest. Saving a dollar in expense
is better than getting a dollar's worth of tax deductions since the
deduction only saves it by the percentage your tax bracket is in.
Arthur Kamlet
Bill Brown <bro...@longwood.edu> wrote:
>On Dec 18, 8:12�am, "Wallace" <pleasenos...@microsoft.com> wrote:
>
>>
>> I'm not sure what you are trying to say here, but:
>
>He's talking about points to buy down the interest rate on a home
>mortgage that qualifies as acquisition indebtedness. It is an
>exception to the general rule you quoted.
However, if these points are paid to the same lender, don't they
have to be amortized, not fully deducted?
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
removep...@yahoo.com
> Bill Brown �<brow...@longwood.edu> wrote:
> >On Dec 18, 8:12 am, "Wallace" <pleasenos...@microsoft.com> wrote:
>
> >> I'm not sure what you are trying to say here, but:
>
> >He's talking about points to buy down the interest rate on a home
> >mortgage that qualifies as acquisition indebtedness. It is an
> >exception to the general rule you quoted.
>
> However, if these points are paid to the same lender, don't they
> have to be amortized, not fully deducted?
If it is a new additional loan that happens to be from the same
lender, and points were paid on this new loan, then the points on this
new loan only would be fully deductible if the loan is used to improve
the home. Points paid to refinance the original/main loan must be
amortized over the life of the loan, though I guess if you refinance
in Jan/2010 and sell your house in Jun/2010, then you can deduct all
the points in 2010.
>From publication 936:
Deduction Allowed in Year Paid
You can fully deduct points in the year paid if you meet all the
following tests. (You can use Figure B as a quick guide to see whether
your points are fully deductible in the year paid.)
1.
Your loan is secured by your main home. (Your main home is the
one you ordinarily live in most of the time.)
2.
Paying points is an established business practice in the area
where the loan was made.
3.
The points paid were not more than the points generally charged
in that area.
4.
You use the cash method of accounting. This means you report
income in the year you receive it and deduct expenses in the year you
pay them. Most individuals use this method.
5.
The points were not paid in place of amounts that ordinarily are
stated separately on the settlement statement, such as appraisal fees,
inspection fees, title fees, attorney fees, and property taxes.
6.
The funds you provided at or before closing, plus any points the
seller paid, were at least as much as the points charged. The funds
you provided do not have to have been applied to the points. They can
include a down payment, an escrow deposit, earnest money, and other
funds you paid at or before closing for any purpose. You cannot have
borrowed these funds from your lender or mortgage broker.
7.
You use your loan to buy or build your main home.
8.
The points were computed as a percentage of the principal amount
of the mortgage.
9.
The amount is clearly shown on the settlement statement (such as
the Settlement Statement, Form HUD-1) as points charged for the
mortgage. The points may be shown as paid from either your funds or
the seller's.
Note.
If you meet all of these tests, you can choose to either fully deduct
the points in the year paid, or deduct them over the life of the loan.
Home improvement loan. You can also fully deduct in the year paid
points paid on a loan to improve your main home, if tests (1) through
(6) are met.
Bill Brown
> In article <3868a7f5-1eab-477c-87b8-efd4d53a9...@e20g2000vbb.googlegroups.com>,
> Bill Brown �<brow...@longwood.edu> wrote:
>
> >On Dec 18, 8:12 am, "Wallace" <pleasenos...@microsoft.com> wrote:
>
> >> I'm not sure what you are trying to say here, but:
>
> >He's talking about points to buy down the interest rate on a home
> >mortgage that qualifies as acquisition indebtedness. It is an
> >exception to the general rule you quoted.
>
> However, if these points are paid to the same lender, don't they
> have to be amortized, not fully deducted?
> --
>
continue being amortized over the new mortgage term if both mortgages
are issued by the same lender. Otherwise, the borrower can deduct the
remaining unamortized points from the old loan.
If there is cash out on the new mortgage used for improvements on the
personal residence, the borrower has the option of immediately
deducting an appropriate proportion of the points on the new loan.
Otherwise, points on the new loan have to be amortized over the life
of the new loan.
Arthur Kamlet
removep...@yahoo.com <removep...@yahoo.com> wrote:
>On Dec 18, 10:46�am, kam...@panix.com (Arthur Kamlet) wrote:
>> Bill Brown �<brow...@longwood.edu> wrote:
>
>> >On Dec 18, 8:12 am, "Wallace" <pleasenos...@microsoft.com> wrote:
>>
>> >> I'm not sure what you are trying to say here, but:
>>
>> >He's talking about points to buy down the interest rate on a home
>> >mortgage that qualifies as acquisition indebtedness. It is an
>> >exception to the general rule you quoted.
>>
>> However, if these points are paid to the same lender, don't they
>> have to be amortized, not fully deducted?
>
>If it is a new additional loan that happens to be from the same
>lender, and points were paid on this new loan, then the points on this
>new loan only would be fully deductible if the loan is used to improve
>the home.
Are you sure?
Test 7 below pointedly (deliberate) omits "improve."
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
--
removep...@yahoo.com
> In article <b4f18c3c-e638-4847-a264-cbac5ff8d...@y10g2000prg.googlegroups.com>,
> removeps-gro...@yahoo.com <removeps-gro...@yahoo.com> wrote:
> >On Dec 18, 10:46�am, kam...@panix.com (Arthur Kamlet) wrote:
> >> Bill Brown �<brow...@longwood.edu> wrote:
>
> >> >On Dec 18, 8:12 am, "Wallace" <pleasenos...@microsoft.com> wrote:
>
> >> >> I'm not sure what you are trying to say here, but:
>
> >> >He's talking about points to buy down the interest rate on a home
> >> >mortgage that qualifies as acquisition indebtedness. It is an
> >> >exception to the general rule you quoted.
>
> >> However, if these points are paid to the same lender, don't they
> >> have to be amortized, not fully deducted?
>
> >If it is a new additional loan that happens to be from the same
> >lender, and points were paid on this new loan, then the points on this
> >new loan only would be fully deductible if the loan is used to improve
> >the home.
>
> Are you sure?
>
> Test 7 below pointedly (deliberate) omits "improve."
True, but read on. I also quoted:
Arthur Kamlet
removep...@yahoo.com <removep...@yahoo.com> wrote:
>On Dec 18, 11:49�am, kam...@panix.com (Arthur Kamlet) wrote:
>> In article
><b4f18c3c-e638-4847-a264-cbac5ff8d...@y10g2000prg.googlegroups.com>,
>
>> removeps-gro...@yahoo.com <removeps-gro...@yahoo.com> wrote:
>> >On Dec 18, 10:46�am, kam...@panix.com (Arthur Kamlet) wrote:
>> >> Bill Brown �<brow...@longwood.edu> wrote:
>>
>> >> >On Dec 18, 8:12 am, "Wallace" <pleasenos...@microsoft.com> wrote:
>>
>> >> >> I'm not sure what you are trying to say here, but:
>>
>> >> >He's talking about points to buy down the interest rate on a home
>> >> >mortgage that qualifies as acquisition indebtedness. It is an
>> >> >exception to the general rule you quoted.
>>
>> >> However, if these points are paid to the same lender, don't they
>> >> have to be amortized, not fully deducted?
>>
>> >If it is a new additional loan that happens to be from the same
>> >lender, and points were paid on this new loan, then the points on this
>> >new loan only would be fully deductible if the loan is used to improve
>> >the home.
>>
>> Are you sure?
>>
>> Test 7 below pointedly (deliberate) omits "improve."
>
>True, but read on. I also quoted:
>
>Home improvement loan. You can also fully deduct in the year paid
>points paid on a loan to improve your main home, if tests (1) through
>(6) are met.
OK. I shouldn't try speed reading :-)
Don Priebe
> He's talking about points to buy down the interest rate on a home
> mortgage that qualifies as acquisition indebtedness. It is an
> exception to the general rule you quoted.
This is a rental property. Points (if any) must be amortized.
--
Don EA in Upstate NY