- The Washington Times - Thursday, June 5, 2003

Though it may appear at first glance that the new tax law won’t affect homeowners overall, you have to look at the fine print to realize the new rates and tables may knock some homeowners out of the mortgage interest deduction game.

At the same time, for taxpayers who earned more than $47,450 in 2002 — you will notice a tremendous reduction in taxes, as you drop from a tax rate of 27 percent down to 15 percent. Don’t tell me that won’t affect an economy or two.

If you were on the cusp of the two tax brackets, your mortgage interest deduction should become a very important part of your tax strategy. If it brings you down to the lower bracket, you’re going to save hundreds of dollars over last year’s numbers.

Keep in mind that I’m not an accountant, but just look at the tables at the Web site for CCH Inc. (www.cch.com), a leading provider of tax and business law information and software. You’ll see what I’m talking about.

For those in the lower tax brackets, it may work best for you to look at taking the standard deduction instead of deducting your home mortgage interest. In the past, a taxpayer would weigh the difference between adding up all allowable deductions and compare them to the standard deduction. For those filing jointly, that standard deduction jumps from $7,950 to $9,500 with the new tables.

Here’s what I’m talking about: Let’s say you own a condo or manufactured home in Florida with a mortgage that started out at $35,000, 6 percent, 30 years. Your interest payments the first year would be just $2,983.28, according to the mortgage/amortization calculator I used at www.AccessNational.com.

That means you would have to come up with nearly $6,500 more in deductions elsewhere to be able to use that home mortgage interest as a substantial itemized deduction on your Form 1040. With charitable donations and a child or two, that might not be a problem. If not — I’m no rocket scientist — go for the higher standard deduction. It looks as if it would save you more.

Regardless of the size of your mortgage interest deduction, the new rates for all brackets above 15 percent will most likely drop your tax bill. If you meet the itemized deduction limit, your mortgage interest deduction will lower your tax bill even more.

In addition, by expanding the 15 percent bracket by $9,350 for married couples filing jointly — the marriage penalty just got a lot less taxing. The mortgage interest deduction really takes a bite out of your tax bill if you were earning right at $55,000 to $58,000 last year because now you don’t have to hunt around for that extra $9,350 in deductions to drop into a lower rate.

Finally, the marriage penalty is starting to look more like a marriage bonus. So if you’re a guy who has been holding off popping the question — take the extra tax savings, make a down payment on a ring and take her out to dinner.

Another area of tax savings will be in the arena of capital gains. All the talk about cutting capital gains kept centering around the rich and how this would benefit them in their sales of stocks and bonds. Well, I know a few middle-income older folks who have invested in real estate all their lives who are going to benefit immensely from this rate change.

The 20 percent tax on long-term capital gains will drop to 15 percent. Long-term capital gains are gains acquired from assets held more than a year. And here’s a double bonus: The rate is retroactive to sales on or after May 6, 2003.

This means that if your grandpa sold his investment property this year and realized a capital gain of $100,000 — the change in the capital gains rate will save him $5,000. Now why would it be better for Uncle Sam to get that extra $5,000 instead of grandpa parceling it out to his grandchildren if he wants?

If your income is in the 10 percent or 15 percent brackets, your capital gains tax rate is cut in half to 5 percent and eventually will be dropped to zero by 2008.

The new tax law can help a lot of people who have investments or equity in real estate. Get to know the law to find out how it will benefit you.

M. Anthony Carr has written about the real estate industry for more than 14 years. Contact him by e-mail ([email protected]).


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