Mortgage Deduction Only Useful On Itemized Return


We received a mortgage interest statement showing that we paid $3,800 in 1999'It's just the two of us and we file with the TeleFile'My question is, do we have to file any forms and if so, what forms should we use? Our household income is under $35,000'We want the most refund we can get, as every penny counts.

Mr'& Mrs'H., Indianapolis

The only time you need to include your mortgage interest on your tax return is if you itemize your deductions'People who spend a lot of money on deductible items that can reduce their income have the opportunity to file a Schedule A, Itemized Deductions, with their tax return and thus lower the amount of income on which they pay tax.

If you use the TeleFile service provided by the IRS, you don't have the opportunity to itemize your deductions'But you probably don't need to itemize in order to take advantage of tax benefits that are already available to you.

As married taxpayers, you are entitled to what is called a standard deduction, which amounts to $7,200 for married couples for 1999'You only need to think about claiming itemized deductions if the deductions you could itemize exceed this $7,200.

The types of things that qualify as itemized deductions include

  • mortgage interest
  • certain medical expenses
  • real estate and other property taxes
  • state income taxes
  • charitable deductions

    You paid $3,800 in mortgage interest'If your income is around $35,000, you probably paid around $1,200 in state income taxes during 1999.

    Since you own a home, you pay real estate taxes'Let's say that your real estate taxes for 1999 might have been around $600'The actual amount you paid is probably listed on the same statement that shows your mortgage interest.

    If you own a car, you paid excise tax when you purchased your license plates (described as 'County Tax'on your auto registration form)'Excise tax is a form of property tax'Perhaps this amount was $75.

    You may have made contributions to church and other charities during 1999'Let's assume you gave $300 to charity.

    So far, your allowable deductions are mortgage interest ($3,800), state income tax ($1,200), real estate tax ($600), excise tax ($75), and charity ($300), for a total of $5,975'Because of the strange rules surrounding medical deductions, you would have to have more than $4,000 worth of medical expenses that weren't covered by insurance before it would make sense to think about itemizing your deductions.

    In other words, after all of these confusing calculations, you probably don't have enough deductions to exceed the $7,200 deduction that the government automatically gives you'Therefore, you will automatically get the best tax rate when you use the TeleFile system, as you have been doing'You don't have to list the mortgage interest expenses, or any of these other expenses on any of your tax forms'The IRS will take care of reducing your income by the $7,200 standard deduction, and you will get the best tax rate possible by filing this way'You can consider the mortgage interest that you paid to be just part of that $7,200 deduction.

    The federal TeleFile system enables taxpayers who normally file on Federal tax form 1040EZ the right to file their tax return over the phone'There are no forms to sign and tax returns (and presumably refunds) are processed more quickly than with paper tax forms'If you owe money, you can still use TeleFile, and pay your taxes with either a direct debit from your bank account or with a credit card'TeleFile is only available for Indiana and Kentucky taxpayers at this time'You may only use this service if you received a TeleFile package in the mail from the IRS.

    One thing that you should keep in mind, since you are a homeowner, is that this year you will want to fill out Indiana Schedule 1 when you prepare your Indiana income tax return'Schedule 1 is included in the Indiana tax forms booklet that you get in the mail'On line 2 of Indiana Schedule 1, you are able to take a deduction for the amount of property tax that you paid during 1999'This is a new deduction for 1999 and will affect all Indiana homeowners'This new deduction will save you a little money on your Indiana taxes.

    copyright © 2000 Gail Perry - Fun with Taxes

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