If you itemize, you may have to wait on the revised tax forms
Did you ever notice that when you put the words
"The" and "IRS" together, it spells "THEIRS?"
Ninety-three days from Saturday - or a little more than 2,232 hours - we have to file our income tax returns. I suspect some mathematically inclined readers will say, "Hey! That is April 18; I thought we have to file by the 15th."
Normally, that is correct, but since April 15 is observed as Emancipation Day in the District, the Internal Revenue Service has given us an extra weekend to have the pleasure of filling out those Form 1040s.
Of course, for the procrastinator, you have the right to file for an automatic six-month extension by sending the IRS Form 4868. You will get the extension but you still have to pay any tax that you owe by April 18. And because Oct. 15 is a Saturday, the final tax returns are due no later than midnight, Monday, Oct. 17.
If you itemize your deductions, do not plan to send the IRS your tax returns until the revised forms are available. Because Congress enacted the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which became law Dec. 17, the IRS has not yet prepared the necessary forms to comply with this new law. According to the IRS, you may have to wait until mid-to-late February to file your tax return, if you fall into one of the following categories: taxpayers claiming such itemized deductions as mortgage interest or state and local taxes; taxpayers claiming the higher education tuition and fees deduction, or those claiming the educator expense deduction.
But this does not mean that you can go on vacation until the forms are available. Now is the time to start planning and organizing your thoughts and your paperwork. If you paid more than $600 in mortgage interest last year, you will soon be receiving Form 1098 from your lender or lenders. Don't just file the form away; review it carefully. Lenders - and their computers - make mistakes. Get an amortization table from the Internet, plug in your specific loan transaction, and add up the interest you paid. (You can find good information, as well as amortization tables, from the Mortgage Professor's Web site: mtgprofessor.com, and type in "amortization schedule.")
If you find an error, immediately advise your lender so that the mistake can be corrected. This is especially true if the form understates the amount of interest you paid, since mortgage interest is one of the few expenses relating to your home that you can deduct on an annual basis.
Typically, Form 1098 will also show the amount of property taxes the lender has paid on your behalf, assuming that the lender is escrowing for these taxes. If you bought a home or refinanced in 2010, review the settlement statement (called a HUD-1). Your settlement attorney may have paid some taxes directly from your loan proceeds, and this amount will not be reflected on the form 1098.
If you were involved in a short-sale of your house last year - or if your house was foreclosed upon - you will get a form 1099-C. If $600 or more of your mortgage debt was canceled, your lender must send this form to you. In many situations, a tax must be paid on the amount of the canceled debt. However, there are three important exceptions. First, if you filed for bankruptcy relief and the cancellation is authorized by the judge, the amount canceled is not considered income and no additional tax is due.