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Pay January mortgage payment early?

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patticaryl
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Pay January mortgage payment early?  Reply with quote  

Was wondering if anyone knows.......can I pay my Jan house payment before Jan 1 and write off the Jan interest for 2005? Thanks.
Post Fri Dec 23, 2005 3:10 pm
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Rolo
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Ima say 'no'. The interest is not accrued during TY2005.

quote:
Prepaid interest. If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year. However, there is an exception that applies to points, discussed later.


http://www.irs.gov/publications/p936/ar02.html

"Expect me when you see me."
Post Fri Dec 23, 2005 5:32 pm
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patticaryl
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But if it is due on jan 1, isn't it interest from the prior month? Tthanks for the help!
Post Fri Dec 23, 2005 5:39 pm
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Rolo
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quote:
Originally posted by patticaryl
But if it is due on jan 1, isn't it interest from the prior month?


OH YEAH HUH!?

I don't think it matters when you actually pay it; your 1098...1099...whatever it takes (thingie that reports to IRS how much interest you OWED in 2005) will reflect that.

This is where you get into the two different accounting methods: when the expense was incurred vs. when it was paid.

"Expect me when you see me."
Post Fri Dec 23, 2005 6:48 pm
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coaster
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Rolo is correct. The mortgage company will send you a form stating the interest paid on your mortgage during 2005 (I don't remember the form number) and so it doesn't make any difference if you pay it early -- the amount reported on the form will be the 2005 interest. It's the amount reported on the form that you report on your tax return.

~Tim~
Post Fri Dec 23, 2005 9:44 pm
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patticaryl
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Thanks for trying to help, but now that it's the new year, I found several tax saving articles that state you can pay your jan.1 mortgage payment before Dec. 31 and deduct the interest for jan payment. I paid my house payment late Fri night, and so I guess I missed it since it won't clear the bank until Mon. morning, posting on the second of Jan. Bummer. I wish I had realized I could have paid my property taxes for 2006 too and saved money.
patti
Post Mon Jan 02, 2006 12:12 am
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coaster
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Subsequent to my post above I heard on the radio (Clark Howard) that you could do that. (News to me.) But you might have to make sure the mortgage company reports it the way you want, because you do have to report what they put on the form - or have a very good reason in writing why it's different (in case of an audit). Laughing

Sorry about not making it for this year, but hopefully you'll have more income in 2006 and you'll need the deductions even more this year. Wink

~Tim~
Post Mon Jan 02, 2006 12:18 am
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patticaryl
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Nope, Tim.....I really needed all the help I could get for 2005. I received a settlement that will be heavely taxed and don't expect the income to compare this year. Oh, well. Happy New Year to you.
Post Mon Jan 02, 2006 12:24 am
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bong12187
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quote:
Originally posted by patticaryl
Nope, Tim.....I really needed all the help I could get for 2005. I received a settlement that will be heavely taxed and don't expect the income to compare this year. Oh, well. Happy New Year to you.

I have an S Corporation with my some of my properties dealing with my real estate. I also have some of my real estate going straight to my personal account. I went ahead and paid all of the property taxes and insurance that were due for 2006 (paid them in Dec 2005). Why did I do that? Since tSP increased for 15k and my wife and I will be able to max both of our TSP (thus lowering our income when we get our W2), I didn't need as much deductions for 2006. I was able to use the payment Ive made for all of my property taxes and insurances and deduct them for 2005. My TSP max for 2005 is only 15% (wife) and 10% (me).

I decided not to pay the mortgage for January 2006 early because the benefit is not too significant. Why? for 2006, I would only be left with 11 months interest payment which would lower down my deductions.
Post Wed Jan 11, 2006 10:08 am
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efflandt
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I refinanced this last spring and now auto pay on the 18th of the month. But my old mortgage statement from the beginning of 2005 started with interest and principal for February payment. So I assume they included payment due 1/1/05 paid in December in my 2004 statement.

Obviously a payment due January 1 would have to be made before then, unless you were taking advantage of a grace period (which you may not know might cost you eventually at the end of the loan).

The first auto payment for my home refinance appeared to work, but fell through 5 days later. Just paying it 5 days late by check would have cost me about $140 in extra interest. But when I wrote to the bank politely explaining that it was their error (the money was in the account), they gave me credit against prinicpal as though the payment had been made on time.
Post Thu Jan 12, 2006 12:27 am
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