Honey I Eliminated The Mortgage Interest Deduction Plan 2

Honey,​ I​ Eliminated the​ Mortgage Interest Deduction – Plan 2
A bipartisan committee has made two recommendations to​ President Bush regarding tax reform .​
In this article,​ we take a​ look at​ the​ second option .​
Tax Reform
A year ago or​ so,​ President Bush decided to​ spend his political capitol on​ tax reform and fixing social security .​
Social security reform went down in​ flames,​ so now it​ is​ time to​ see if​ tax reform is​ an​ option .​
In an​ effort to​ eliminate the​ Alternative Minimum Tax,​ the​ committee was charged with coming up with alternative revenue sources .​
The biggest deduction on​ the​ books is​ the​ mortgage interest deduction and the​ committee has offered two plans .​
The first puts a​ cap on​ the​ deduction and would be a​ disaster .​
The second option,​ however,​ is​ very interesting .​
The committee on​ tax reform has recommended a​ unique approach to​ eliminating the​ mortgage interest deduction entirely .​
Before you​ go ballistic,​ consider what they are replacing it​ with .​
In this second option,​ a​ homeowner would be unable to​ deduct any mortgage interest .​
They would,​ however,​ be able to​ claim a​ tax credit equal to​ fifteen percent of​ the​ interest paid up to​ an​ undefined mortgage cap .​
While that is​ a​ lot of​ jargon,​ the​ key is​ the​ difference between a​ tax deduction and a​ tax credit .​
A tax deduction is​ reduced from your overall income .​
If you​ earn $80,​000 and pay $10,​000 in​ interest,​ your taxable income will be reduced to​ $60,​000 .​
It looks good,​ but it​ doesn’t make as​ big a​ difference in​ the​ actual tax you​ pay .​
a​ tax credit,​ however,​ is​ a​ different story .​
A tax credit is​ an​ amount deducted from the​ actual amount of​ tax you​ have to​ pay each year .​
Assume you​ whip together your taxes and owe $10,​000 to​ the​ IRS after claiming all your deductions and checking the​ tax owed chart .​
Under the​ tax reform plan,​ you​ would total the​ interest paid for the​ year and then reduce your tax owed by 15 percent .​
If you​ paid $10,​000 in​ interest during the​ year,​ you​ would take a​ tax credit of​ $1,​500 against the​ tax owed .​
In short,​ this would reduce the​ check you​ have to​ send in​ from $10,​000 to​ $8,​500.
The tax credit plan offered by the​ tax reform committee is​ very interesting .​
It could be windfall for some people .​
Apply the​ numbers to​ your 2004 taxes and see how you​ come out.

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