Tax gurus - a question

[Gearhead]

As we get ready to ease into retirement, the SO and I have sold our respective houses and bought a house together. So she now has no mortage deduction (I pay the mortage) and also has no dependents. Should she change her withholding from Single and 2 to Single and 1 or Single and 0?

 

[haha]

As we get ready to ease into retirement, the SO and I have sold our respective houses and bought a house together. So she now has no mortage deduction (I pay the mortage) and also has no dependents. Should she change her withholding from Single and 2 to Single and 1 or Single and 0?

Are you both owners of the house?

Your question may be more complex than you think. I can't answer, perhaps others can.

Ha

 

[Gearhead]

Yes, we are both owners of the house.

 

[youbet]

As we get ready to ease into retirement, the SO and I have sold our respective houses and bought a house together. So she now has no mortage deduction (I pay the mortage) and also has no dependents. Should she change her withholding from Single and 2 to Single and 1 or Single and 0?

How much your SO should withhold during the year will depend on much more than just whether she is paying mortgage interest or not. Do a quick estimate of your anticipated taxes via one of the computerized tax programs and arrange withholding appropriately.

If nothing else changed and she now has fewer deductions due to no mortgage interest expense, she likely should withhold more. But hard to tell from here if nothing else changed.........

 

[jIMOh]

I am married and claim 7 exemptions, wife claims another 4 or 5 right now I think.

Every situation will be different. How much mortgage interest are you paying?
What is your expected tax liability?
What else do you itemize?

 

[SteveL]

Are you and SO married? Since it is so early in the year, I wouldn't worry right now. When you do your taxes, (turbotax or taxcut) the software can help you decide how to file your W4. The software has a what-if feature that allows you to simulate what your deductions are likely to be.

 

[Gearhead]

We're not married. I take the interest deduction on the house. She has no deductions and no dependents, so she will file a short form.

 

[haha]

We're not married. I take the interest deduction on the house. She has no deductions and no dependents, so she will file a short form.

What I do not know is whether you can legally parcel out the deduction from mortgage interest paid by you, when you are actually both on the note.

A good question for a CPA, IMO.

 

[Gearhead]

What I do not know is whether you can legally parcel out the deduction from mortgage interest paid by you, when you are actually both on the note.

We're both on the deed, but I'm the only one on the mortage. I guess I should have clarified that better.

 

[Dennis]

Like HaHa Said> Best Consult w/ your tax advisor.. and Another thing? She should have her own advisor..looking out for Her interest, not yours..She may have legal Rights of ownership and Libaility she is not aware of..

But, if it's Nickels and Dimes? Give her the $ she would make if she did deduct it off her taxes and let you do it..It can go along way in your relationship and come back 10 fold...

 

[RonBoyd]

I am curious about this issue for intellectual curiousity reasons. We haven't been able to take advantage of the "Mortgage Interest Deduction" for many years -- mainly the lack of a mortgage but also because of the Standard Deduction hurdle. It seems to me that this tax "benefit" applies only to those of very high income AND very large mortgages (high interest?). The vast majority of tax payers don't fall into that category despite what real estate salespeople may say. Am I correct in my thinking?

Who Benefits from the Home Mortgage Interest Deduction?

Scott Burns' Homeownership Tax Benefits Calculator

 

[dex]

Yes, we are both owners of the house.

Just curious - do you have a written agreement as to how the assets will be split, if the two of you split?

 

[soupcxan]

It seems to me that this tax "benefit" applies only to those of very high income AND very large mortgages (high interest?). The vast majority of tax payers don't fall into that category despite what real estate salespeople may say. Am I correct in my thinking?

You don't have to have a huge income and interest expense to get some of the benefit from the deduction, but the savings are often not as great as people think. If your marginal tax rate is 28% and your mortgage costs 6%, people think their effective rate is only 4.32% net of the tax benefit. But lets say you could get the standard deduction for $10,000 versus total itemized deductions of $15,000, of which $8,000 is interest expense. You are only getting a tax benefit on the extra $5,000 over the standard deduction, not on the full $8,000 you paid in interest.

 

[jIMOh]

I am curious about this issue for intellectual curiousity reasons. We haven't been able to take advantage of the "Mortgage Interest Deduction" for many years -- mainly the lack of a mortgage but also because of the Standard Deduction hurdle. It seems to me that this tax "benefit" applies only to those of very high income AND very large mortgages (high interest?). The vast majority of tax payers don't fall into that category despite what real estate salespeople may say. Am I correct in my thinking?

Who Benefits from the Home Mortgage Interest Deduction?

Scott Burns' Homeownership Tax Benefits Calculator

I did not read the articles yet.

The poor receive less of a benefit for 2 reasons

15% of interest is less than 28% of interest. So any "tax break" will always appear to benefit the rich more- whether it is an itemized mortgage deduction, cut in federal taxes or any other tax deduction.

The mortgage deduction is one of the few deductions available to people in 28-33-35% federal tax brackets (most other deductions get phased out around 110-180k AGI).

Third issue (or point) to make things "equal" for all taxpayers, the deduction would need to change to credit (because a credit reduces tax owed dollar for dollar). A $2000 child tax credit reduces the tax of someone in 28% bracket $2000 and a person in 15% bracket $2000 as well.

 

[RonBoyd]

The poor...

I hadn't thought of myself as that for quite some time. Thank you for bringing me back down to Earth. It explains a lot.

 

[Dennis]

"what Real Estate People say" ... Re: That's the First Problem.. Believing them..
Like the same one's who were out selling Houses to anyone that was Alive and Breathing, let alone had a Job making Min. wage...Regardless if they could make payments or not...

And Like we believe everything a New or Used Car Salesman/woman says right?

LOL..

Being Self Emplolyed? We wrote off about 50% of all the Household expenses, from Food to Clothes to The kids Books ( office supplies) to Utilities and even Cable TV..being a Stock trader I have to watch CNBC and other Stock Market Channels and of course Compters for the kids too.. not to mention 50% of taking the Wife out for Lunch and Dinners...

Wonder why some 25% are now going the Self Employed route, even making 25% less, they still make the same Net...

Gov't make things Equal for All Tax Payers? I don't think so..at least not when I was Self employed btwn 1960's to the late 90's...

If the average Rank and File salary worker ever knew all the Deductions a self Employed is getting away with? Their would be a Revolt...! LOL

;>)

being raised in a 10 kid family, you learn quickly...
The things that come to those who wait will be the things leftover by those who got there first.

 

[REWahoo]

Being Self Emplolyed? We wrote off about 50% of all the Household expenses, from Food to Clothes to The kids Books ( office supplies) to Utilities and even Cable TV..being a Stock trader I have to watch CNBC and other Stock Market Channels and of course Compters for the kids too.. not to mention 50% of taking the Wife out for Lunch and Dinners....

...being raised in a 10 kid family, you learn quickly...

...how to be a tax cheat?

 

[OAG]

As we get ready to ease into retirement, the SO and I have sold our respective houses and bought a house together. So she now has no mortage deduction (I pay the mortage) and also has no dependents. Should she change her withholding from Single and 2 to Single and 1 or Single and 0?

Once you figure out how much tax she would owe (using either a SS or a FREE online tax program (like TAXACT (File Taxes Online - Do Taxes FREE - File Taxes With TaxACT)) you can basically just have an additional amount withheld from each paycheck (no need to adjust status or exemptions) to cover the difference (I am assuming here that her taxes will increase). Also there are two instances she may not have to do anything now; 1) if the additional taxes due were less than $1,000, or 2) is she has at least the amount of the taxes due for the previous year withhel in the current year. Just have the additional money to pay the additional taxes ready next mid-April.

 

[wrigley]

I am curious about this issue for intellectual curiousity reasons. We haven't been able to take advantage of the "Mortgage Interest Deduction" for many years -- mainly the lack of a mortgage but also because of the Standard Deduction hurdle. It seems to me that this tax "benefit" applies only to those of very high income AND very large mortgages (high interest?). The vast majority of tax payers don't fall into that category despite what real estate salespeople may say. Am I correct in my thinking?

Who Benefits from the Home Mortgage Interest Deduction?

Scott Burns' Homeownership Tax Benefits Calculator

I believe that 3 out of 4 filers cannot find enough deductions to itemize above and beyond the standard deduction ($9700.00 in 2007 married filing a joint return).

Mike

 

[OAG]

I believe that 3 out of 4 filers cannot find enough deductions to itemize above and beyond the standard deduction ($9700.00 in 2007 married filing a joint return).

Mike

Going to go down a tad more this year (2008) to since you can deduct $500/$1,000 of RE taxes paid even if you do not itemize.

 

[LOL!]

I am curious about this issue for intellectual curiousity reasons. We haven't been able to take advantage of the "Mortgage Interest Deduction" for many years -- mainly the lack of a mortgage but also because of the Standard Deduction hurdle. It seems to me that this tax "benefit" applies only to those of very high income AND very large mortgages (high interest?). The vast majority of tax payers don't fall into that category despite what real estate salespeople may say. Am I correct in my thinking?

While you are correct in your thinking, I want to point out that other things can make itemized deductions the way to go. For example, when we rented an apartment in NY, we always itemized since our NY state income taxes put us way over the standard deduction. I think we only had an AGI of about $60K to $80K back then.

So if you are not itemizing, it's possible you live in a low tax state, don't pay property taxes and don't give any money to charity even if you have no mortgage. You should also consider "bunching" your deductions into every other year.