You are not sure what I am talking about?

Don’t worry you are not alone. You see we all believe that the interest you pay for your home (mortgage and a HELOC interest) is tax deductible. I found out the hard way that this is not really the case.

When you refinance on your home and use the money for any reason other than home improvement, the IRS limits your deduction for interest. In some cases you won’t be able to claim the deduction at all.

The IRS does give you some tax benefit and call this the home equity indebtedness deduction.

All this simply means is that:

If you are married and file a joint return you are generally allowed to claim a deduction interest up to $100,000 of the funds you borrowed. If you file separate tax returns the limit is $50,000. I am only referring to one aspect of the deductions here which relates to refinancing or borrowing extra from your mortgage. There are other deductions and incentives so please consult your advisor.

Like everything in life they give you something and then take it away.

Let’s look at the following example to see how this works.

Let’s assume that you bought your home for $300,000. After a few years you currently owe $260,000 on your home.

You decide to refinance and take cash out for $30,000. You worked hard and though it would be the ideal time to cash out. Can you claim an interest deduction on the entire $30,000? Let’s assume the market value on your home the day you decided to take the cash out refinance is $320,000.

The IRS limits your deduction according to the following:

You need to do a second quick calculation to find out the difference between the market value of your home and the costs plus improvements. In this example your market value is $320,000 and the cost is $300,000 so the difference is $20,000. This means is that even though you are allowed to claim up to $100,000 the IRS limits this and tells you that you can only claim interest on $20,000. So if you borrowed $30,000 and used this for personal use, the tax deduction for interest can only be claimed on $20,000. The interest you paid on the other $10,000 is disallowed.

Now if the market value of your home has decreased below the cost of your home, you cannot claim interest on any of the $30,000 you borrowed. I have seen hundreds of clients caught up in this potential tax trap and most of them have their taxes completed by their tax accountants. So if you home is worth $290,000 today and the original cost is $300,000, the entire interest you paid on the $30,000 you borrowed cannot be claimed for tax purposes.

Now here is some bad news especially in this economy where home prices have fallen really steeply. If the value of your home is less than what you paid for it and you borrowed money from your HELOC for personal use, the IRS prevents you from claiming a tax deduction for the mortgage interest. Let’s say your home is worth $300,000. It is value at $285,000 today. You borrowed $30,000 from your HELOC for personal use. The interest paid on the $30,000 is not deductible for tax purposes. If you have claimed this deduction in the past or plan to claim this in the current year, please don’t. You could end up with penalties and extra fines.

How do you know if you are caught up in this tax trap?…

By signing up above we will send you a quick guide for reference purposes only.

I strongly recommend you contact your advisor or if you plan to refinance your mortgage, keep detailed records so you can claim the correct deduction.

If you have refinanced and used the proceeds for personal sign up above and we will give you access to a free mortgage tax guide with a checklist to see if you claimed more than you should in the past.

Please note that this article is for information purposes only and should not be considered tax advice of any kind. We take no responsibility for the use of this information. I strongly urge you to contact your tax accountant for more information specific to your situation.

Here are a few questions

Are you planning to retire but still have a huge mortgage payment in retirement?

Okay So What Should You Do First?

Do you know the ins and outs of the stock market? Well for most of us we are only good at contributing money to our savings and 401k plans. And thats about it.

Do you consider yourself a financial whiz kid when it comes to investing in the stock market?

It is not your fault. You are just not given the right information.

Without a clear goal and objectives you are bound to lose your money even if you are managing your own money or having a specialist manage your nest egg.

The Rewards of A Final Payoff

Why would you want to hang on to that large monthly payment if you didn’t have to? Outright ownership means no more mortgage and loads of money in your pocket. Using Mortgage Free for Life can speed up the process.

Spending more of your paycheck each month on your mortgage is one way of paying off your mortgage faster.

Are you in a position right now to spend more money each month to pay off your mortgage?

Good investments can produce more than paying extra on the monthly mortgage. Look into mortgage acceleration as a way to achieve the final reward of being Mortgage Free for Life.

Are you neglecting your investments?

Accelerating your mortgage payments is what the Mortgage Free for Life program is all about.

Eliminate Your Home Loan Not Your Extra Savings

Paying off your mortgage in under half the time is easily achieved by using the mortgage free for life system.

By using accelerated mortgage principles, you harness the power of paying less interest. Paying less interest means paying off your debt more quickly and becoming Mortgage Free for Life.

Using a financial calculator, a professional can show you how to accelerate your mortgage.

The best way to find out if the mortgage acceleration program would work for your situation is to use a mortgage acceleration calculator. Just plug in the numbers and see how fast you can slash years of your mortgage.You may be tempted to refinance your mortgage to drop your monthly payments. It makes sense to do so when your mortgage rates have dropped. By refinancing itself does not make any difference to the term of the mortgage. The mortgage has to be repaid.

Life Without A Mortgage

One reason to pay off your mortgage would be to use the equity in your home to pay for your kids college education.

Another way could be to use the equity in your home to buy an investment property. Imagine having the ability to fund a deposit on an investment property, and earn a steady stream of cash flow for life.

Find out exactly how fast you can slash you mortgage in less than 10 years and save thousands go here to learn about more Mortgage Accelerator strategies and pay off mortgage tips