Make your credit cards tax deductible - With the new credit card minimum payments set to go up this year, you may want to consider consolidating them with a home equity line of credit or cash out refinance.

Other large payments can be paid off as well. It does not have to be credit cards. You could pay off installment loans that you may have outstanding as well.

A good measurement for considering a refinance or second mortgage to pay off credit cards would be the time in which you would be able to pay off the credit debt. Because of "compounding interest" if your credit debt would remain unpaid after three years of payments, consolidating your debt would most likely be beneficial.

Consolidating all or many of your debts with a refinance or second mortgage may save you considerable amounts of money each month. You can put the money you save into a savings account or towards extra principal payments to your mortgage. This will maximize the benefits to you and your financial picture.

Make an effort to change the spending habits that led to the high credit card debt. Converting unsecured credit card debt into a debt secured by your home can be very risky if not done properly. Too many trips to the home equity ATM could leave you penniless and homeless.

After you pay the balance of your high interest credit cards off do not close the accounts out, leave them open. Closing accounts that have been open for a long period of time can negatively affect your credit score. A good alternative to closing accounts out is lowering the maximum credit limits of the credit card accounts you paid off.

Asides from the tax benefits of consolidating your credit cards into a refinance, the added benefit is you would then make only one payment instead of cutting multiple payments to different card companies each month.

Many people fall into a trap of paying off their credit card debt by refinancing, only to go out and charge up the credit cards again. Be careful not to let this happen to you. You will not only have the payments you were trying to eliminate, but also a higher mortgage payment on top as well.

As oppose to credit card interest payments, interests paid on Home Equity Loan and Home Equity Line of Credit (HELOC) may be tax deductable. As always, consult a tax accountant or the IRS website before taking such deductions.

Make sure to check with a tax professional as a HELOC is not always tax deductible.

Deductible Housing Expenses -

One of the advantages of owning your own home is that the home mortgage interest and real estate taxes paid can be deducted from your federal income tax*. To do so, youll need to comply with current tax laws and complete the appropriate federal tax forms and itemized deduction schedules.




Home Mortgage Interest
For your home mortgage interest to be deductible, it must be for a first or second mortgage, a home improvement loan or a home equity loan. Additionally


The mortgage loan must be secured by your main home or a second home
Only interest paid for that tax year can be deducted
The amount you can deduct can be limited if your mortgage balance is more than $1 million ($500,000 if married filing separately) or the mortgage was taken out for reasons other than to buy, build or improve your home.



Points
Points (aka loan origination fees, maximum loan charges, loan discount, or discount points) are generally treated as pre-paid interest and, as such, the full amount cannot be deducted in the year paid. Rather, the deduction must be taken over the term of the loan.



Real Estate Taxes
State or local real estate taxes can be deducted from your income if they are paid in the tax year. To qualify, the tax must be levied on the propertys assessed value, the taxing authority must charge a uniform rate for properties in its jurisdiction, and the tax must not be for your special privilege but for the benefit of the general welfare.



Restrictions on Itemized Deductions
The amount of itemized deductions you can take are restricted by your adjustable gross income. In 2003, the limits were $139,500 for single persons, persons filing as head of household or qualified widow(er), or married persons filing jointly; and $69,750 for married persons filing a separate return.



Non-deductible items
Many of the expenses related to owning your own home cannot be deducted from your income tax. These non-deductible items can include:



Most settlement costs, including (but not limited to) appraisal fees, notary fees, VA funding fees, and mortgage preparation costs
Insurance
Local assessments that generally add value to your home, such as sidewalks, sewers, etc.
Utilities
Domestic help
Depreciation
Check with the IRS

*The information contained here is for informational purposes only and may not reflect current tax year rules and regulations. Youll need to consult with your tax attorney, CPA, or the IRS for current tax year rules, restrictions and regulations.

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