In early March, the Federal Reserve slashed interest rates in an attempt to stabilize the markets hit by Coronavirus.
This has led to a flood of people looking to refinance their cars and homes, hoping to get a better long-term loan. As there’s now an increased level of buying power, the consideration of ‘what will this mean for my taxes?’ is one that gets asked frequently during these times, which is why we decided to put together a quick guide on what you need to know.
With many citing the Mortgage Interest Tax Deduction as a primary driver to purchasing a home, you might be surprised to learn where it stands now, as well as if it’s a good option for you to refinance as well. Here’s what’s going on with it:
How the Mortgage Interest Tax Deduction Works
The Mortgage Interest Tax Deduction is an itemized deduction on the interest you’ve paid on your home.
What was once considered a worthwhile incentive when it came to buying a home, the mortgage interest tax deduction changed quite a bit in recent years. After Congress passed the Tax Cuts and Jobs Act of 2017, the standard deduction was then doubled, eliminating many from contention for the credit as the standard was usually more. As noted by Investopedia, the average number of people going after the Mortgage Interest Tax Deduction from 2018 to 2019 is anticipated to drop from 16.46 million to 14.35 million, proving that the need-pool for this deduction has been shrinking.
Where It’s Filed
The Mortgage Interest Statement is Form 1098 for the IRS, which is a pretty-straightforward document to jot down the amount of interest you paid, as well as your lender’s information.
For the practicality of it, refinancing right now to save on the interest you’re paying will stay the wiser move.
What Mortgage Rates Mean to Your Taxes
The basic formula is that the higher you’re paying in interest rates, the more that’s deducted from your taxes.
As most mortgages amortize to pay the interest off first, this is essentially dead money you’re paying into if you can get a more competitive rate. As the tax savings ultimately won’t be worth it in comparison to the Standard Deduction, the basic answer remains simple: now’s still a great time to refinance.
Conclusion: This is Still a Great Time to Refinance.
For the practicality of it, refinancing right now to save on the interest you’re paying will stay the wiser move. Especially with rates ranging from 0 to 0.25 percent, the type of deal you’re going to get on a long-term asset like a house is insurmountable. Check-in with your financial advisor or trusted expert soon to see what type of refinancing options might be available, as this is a deal you don’t want to miss out on.
Want an accountant that supports your mission?
Your financial wellbeing is only part of the equation. Stand firm knowing your accountants back your organizations values, goals, and team, too.