Many of you have read my post on the deductibility of mortgage (Mortgage Interest Tax Deductability - What Are The Limitations?).  Here is what you may not know that I didn't cover and why you may want to start reviewing what changes you may need to make.

First off, the IRS has not been chasing people regarding the limitations on deductibility of mortgage interest, but if you remember, I warned you about common practice, even amoung CPAs and tax advisors saying all mortgage interest (up to the first $1M dollars plus $100,000 home equity anyways) was tax deductible.  This is incorrect as I mentioned in my other post. 

Here is the problem, the Joint Committee on Taxation has recommended to the IRS that they revisit these limitations and start enforcing them.  The reason is that they have estimated nearly $70 Billion (yes, billion!) of IRS revenue has been lost due to taxpayers exceeding these limitations.  That folks, is the estimated annual cost to the IRS.  Do you think they may want to listen to that recommendation?   Remember that the IRS can go back and check your tax returns for up to 7 years (I believe for situations like these)!

Also, the committee recommended to the IRS to "red-flag" all cash-out refinancings by requiring that lenders alert the IRS when they provide this type of financing. 

They are also targeting real estate tax deductions where possible.  There are limitations to these tax deductions, however most of us do not get the detailed break down of how our tax dollars are being used, so we cannot determine this limitation currently.  

Additionally, anyone doing a refinance that paid points?  If you deducted the points fully in the year you refinanced, watch out!  This is another targeted area as the IRS has determined that points paid on a refinance, must be deducted on an annualized basis over the life of the loan.  If the new loan is paid off early, then you can deduct the remaining amount during the year it was paid off.

What does this mean to you?  It is time to start getting your "ducks" in order as the IRS may come after you.  Expect to see proposals surface in legislation next year, regardless of which party controls it.  Remember, new legislation is not really required for some of the limitations, simply the desire for the IRS to go after the wrongdoers. 

If you would like a professional mortgage plan that maximizes your tax deductions legitimately, increase your liquidity, safety and possibly rate of return, visit http://www.solidrockmortgage.com/ or email me.