Taking the Measure of Homeowners' Tax Deductions
Second in a series of columns
"The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin."
-- Mark Twain
It is time to start planning to prepare and file your 2007 income tax return.
The Internal Revenue Service would have us believe that the average taxpayer spends only 3.7 hours completing Form 1040, though the agency admits that if you include tax planning, form submission and recordkeeping, the average increases to 33.5 hours.
Although April 15 is generally thought of as tax day, you do not actually have to file Form 1040 then. A six-month filing extension is automatically available, giving you until Oct. 15. But to take advantage of this extension, you must file Form 4868 -- and pay the full amount of the tax you owe for 2007 -- on or before April 15.
If you are a U. S. citizen or resident and are out of the country, you get a two-month reprieve, until June 16, without having to request an extension. "Out of the country" is strictly defined: You have to live and work outside the United States and Puerto Rico. You cannot just conveniently be in Canada on April 15 to avoid filing.
Another factor affects filing schedules this year. Congress in late December enacted a "patch" for the alternative minimum tax. Because the change came so late, the IRS has advised that several forms may not be available until Feb. 11. About 13 million taxpayers will have to wait until then before they can file.
But Congress also gave homeowners two holiday presents at the end of last year.
If you bought a home in the District in 2007 and neither you nor your spouse owned a principal residence in the District during the one-year period ending on the date of purchase, you may be eligible for a tax credit of up to $5,000. This provision has been around for a number of years but must be renewed occasionally, which is what Congress did.
Additionally, Congress extended the right to deduct as mortgage interest the private mortgage insurance premiums on some loans.
I will discuss these and other tax issues in more depth over the next several weeks. But first, let's review some basic definitions necessary to understand how the tax code affects homeowners.