Jan
16

How Paying Additional Mortgage Payments Will Affect Your Taxes

January 16, 2015

taxesTax season is nearly here, and many people adopted new strategies during the month of December in the hopes that it would reduce their taxes. One of the most common ways that homeowners can reduce their taxes is by paying their January mortgage payment early.

By paying a mortgage payment early, you will be able to deduct 13 interest payments on your 2014 taxes instead of the usual 12. However, it’s important to remember that you’ll have to do the same thing during 2015 to make 12 tax payments. Otherwise, you’ll be paying just 11 payments throughout the year.

In a recent article on the Equifax Finance Blog, “

Will That Early Mortgage Payment I Made in December Affect My 2014 Taxes?,” the experts at Equifax explain the two options available if you made an additional mortgage payment.

One option for homeowners who can’t itemize deductions due to terrific credit and a low mortgage rate is to alternate years in which you prepay. This means you would pay 13 payments one year and just 11 payments the following year, allowing you to itemize your deductions every other year. It is best to run the numbers before choosing this strategy to determine if that additional mortgage payment will be enough to allow you to itemize your deductions.

Another available option is to make extra principal payments on your loan each month. This strategy may reduce your annual interest expense enough that your tax deduction will be eliminated within a few years. As an added bonus, this strategy will reduce your mortgage balance faster, meaning you may pay a 30-year mortgage off within 20 years, which can be worth more than the savings from tax deductions.

To learn more about mortgage payments and taxes, read the full article or visit the Equifax Finance Blog.

 

 

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Courtney Rogers

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