Archives for December 2012

Tax Benefits on Points Paid for a Refinanced Loan

 

When you refinance an existing mortgage loan on your home, you often have to pay points as part of the refinance process. One point is equal to one percent of the loan amount. For example, if the loan is for $200,000, then one point is equal to $2,000. As you can see, the amount paid in points can add up fast. The borrower typically agrees to pay points in exchange for a lower interest rate. The good news is that you may be able to claim a tax deduction for the points you pay to refinance your loan. Let’s look at some of the basics of tax deductions for points paid on a refinance loan.Unlike a primary mortgage, you cannot claim the entire amount paid in points during the year in which the points were paid.

As a general rule, you must spread out the amount paid in points over the life of the loan. For example, if you paid $5000 in points on a 30 year refinance, you would be entitled to deduct $13.89 for each month ($5000/360) or $166.67 per year.You may be able to deduct more during the first year if you use some of the proceeds from the loan to make improvements to the property. In that case, you may deduct the amount associated with the percentage of the loan used for improvements in the first year. For example, if you refinanced a $200,000 loan but you used $20,000 of the proceeds to make improvements, you may deduct $200 in the first year which represents the amount you paid in points on the $20,000.

Tax Credits for Veterans

As a small business owner, you are likely always looking for a way to minimize your tax obligation and maximize your productivity. Hiring a veteran may be a way to accomplish both of those goals at one time.

The Internal Revenue Service, or IRS, offers employers a credit when they hire an unemployed veteran under the Work Opportunity Tax Credit, or WOTC, program. A for-profit company can earn up to a $9,600 credit while a not-for-profit can earn up to a $6,240 credit. The amount of the credit depends on a number of factors including the length of time that the veteran was unemployed prior to being hired, the number of hours the veteran works during the first year of employment and the wages paid to the veteran during the first year of employment. An employer that hires a veteran who has a service-related disability may qualify for the maximum credit amount.

The credit is applied when the employer files taxes at the end of the year; however, an employer must request certification for the credit within a short time after hiring the veteran. Certification must be requested by completing IRS Form 8850 with the state workforce agency.

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