IRS Examines Popular Real Estate Write-Offs

The staff of the nonpartisan Joint Committee on Taxation is taking a close look at two kinds of tax write-offs that home owners regularly use.Its goal is to insure that the IRS collects more money without having to raise taxes.The committee proposes requiring local governments to provide copies of home owner tax statements to the IRS that distinguish between regular and special assessments. That way, the IRS could slap the hands of taxpayers who try to deduct those nondeductible special assessments.The committee also would require lenders to distinguish whether a loan was a first mortgage or a refinance. Tax payers must amortize points they pay for a refinance over the term of the loan. Collecting taxes that are improperly deducted in the first year rather than amortized would net the IRS $70 billion in this year alone, the IRS estimates.Similarly, the committee proposes that lenders report whenever a refinancing led to a new loan amount $100,000 larger than the previous balance. That will alert the IRS to interest write-offs in excess of those permissible under widely misunderstood rules.For most tax payers, the legally deductible portion is the original mortgage debt they incurred to make their home purchase, plus all subsequent capital improvements, minus payments to reduce that principal over the course of the loan.

Source: Washington Post Writers Group, Kenneth R. Harney (10/28/2006)