SEIU District 1199 New Connections Network

COSTS OF REFINANCING YOUR HOME

Taxpayers who refinanced their homes may be eligible to deduct some costs associated with their loans. The term "points" is used to describe certain charges paid to obtain a home mortgage.

Here are some things to remember when deducting points:

• Generally, for taxpayers who itemize, the points paid to obtain a home mortgage may be deductible as mortgage interest
• Depending on circumstances, points can be fully deductible in the year paid
• Points paid solely to refinance a home mortgage usually must be deducted over the life of the loan

For a refinanced mortgage, the interest deduction for points is determined by dividing the points paid by the number of payments to be made over the life of the loan. This information is usually available from lenders. Taxpayers may deduct points only for those payments made in the tax year.

However, if part of the refinanced mortgage money was used to finance improvements to the home and if the taxpayer meets certain other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid. Also, if a homeowner is refinancing a mortgage for a second time, the balance of points paid for the first refinanced mortgage may be fully deductible at pay off.

Other closing costs – such as appraisal fees and other non-interest fees – generally are not deductible. Additionally, the amount of Adjusted Gross Income can affect the amount of deductions that can be taken.

For more information on deductions related to refinancing, Tax Topics 504, Home Mortgage Points, and 505, Interest Expenses and IRS Publication 936, Home Mortgage Interest Deduction.

TAX CREDIT FOR HYBRID VEHICLES

If you bought a hybrid vehicle in 2006, you may be entitled to a tax credit on your 2006 return.  The credit is worth as much as $3,150 for the most fuel-efficient models. The precise amount depends on the make and model of the vehicle and when the vehicle was purchased.

The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit known as the Alternative Motor Vehicle Credit.  The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.

Hybrid vehicles have drive trains powered by both an internal combustion engine and a rechargeable battery.  Many currently available hybrid vehicles may qualify for the credit.  Taxpayers may claim the credit on their 2006 tax returns only if they placed a qualified hybrid vehicle in service in 2006.  Currently, 44 different models of hybrids are eligible for the credit.

The credit is available only to the original purchaser of a new qualifying vehicle.  If the qualifying vehicle is leased the credit is available only to the leasing company.

If more than 60,000 vehicles of a particular model are sold, the tax credit is reduced. The full credit can be claimed up to the end of the third month after the quarter in which the manufacturer sells its 60,000th hybrid vehicle. The only producer for whom the credit has been limited is Toyota Motor Sales, USA, which includes certain Toyota and Lexus models. 

To find out whether your car qualifies for the hybrid tax credit and the maximum amount of that credit, go to the IRS website and search for “qualified hybrid vehicles.”