Mortgage Interest Deduction Gotchas
One of the top reasons why people purhcase a home is the tax deduction on the mortgage interest. This sounds good on paper, but is not necessarily not a good reason to buy a home. For this post, I want to focus on one of the issues: You might not get to deduct the full amount of mortgage interest you paid.
When would this happen?
AMT: For those of you who get hit by the dreaded Alternative Minimum Tax, you won't get to enjoy the full amount of your mortgage interest deduction; in fact, sometimes you won't get to deduct a single dime.
High-income earners: If your taxable income is above a threshold ($150,500 or above ($75,250 for married filing separately) for 2006), you won't get to enjoy the full deduction.
What can you do about this? You need to plan ahead. Although the tax form for your current tax year doesn't come out until next year, you should still have a good idea whether either of the above scenario would happen while you can still do something about it. If it is likely that you'd get hit by either scenariio, consider deferring some of the income until later years.