Standard deduction and refinancing


J

JD

silly me I goofed and couldn't get the previous message in. I have done all the math. My husband is an engineer and I am studying accounting (currently taking a class on Corporate Finance) I know the standard deduction for married filing jointly is $7600 If we refinanced, our new itemized deduction would be $8200. Down from the $10,800 we filed this year. I just want someone to help me understand my husband's logic in not wanting to refinance. I KNOW we should, but he doesn't want to. In this one case he is looking short-term rather than the long-term effects of refinancing.
 
D

D.G.G.

No kidding? Time is money? Hell, then I'm a millionnaire cuz all
I've got is time.

It never ceases to amaze me how people constantly overanalyze issues
like home loans. You can do 10 million computations with 100 million
sensitivities and still not have an answer.

To get to the point: JD, your husband has no logic. He is a man.
The "Y" chromosone overrides any logic that may exist in the brain.
If you believe it is right to refinance then simply make his life a
living hell until he gives in. No amount of talking about "tax crap"
and "recoupment of cash outlay" is going to make a difference. Make
him miserable and you will win.

DGG
"When you start taking tax effect into consideration you are committed
to the short-term goals, not the long-term success of your venture"
 
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W

Wayne Brasch

silly me I goofed and couldn't get the previous message in. I have done all the math. My husband is an engineer and I am studying accounting (currently taking a class on Corporate Finance) I know the standard deduction for married filing jointly is $7600 If we refinanced, our new itemized deduction would be $8200. Down from the $10,800 we filed this year. I just want someone to help me understand my husband's logic in not wanting to refinance. I KNOW we should, but he doesn't want to. In this one case he is looking short-term rather than the long-term effects of refinancing.

I always tell clients and students, "Don't do anything just for tax purposes because about the time you do, Congress will change the tax law." That now has happened to many people who deemed themselves to having sold stock to establish an 18% capital gains rate instead of the original 20% one. In the recently signed new tax law, capital gains rates are now less than that 18% and those people are stuck with the 18% rate regardless.

Wayne Brasch, CPA, M. S. Taxation
 
G

Greg

JD said:
silly me I goofed and couldn't get the previous message in. I have done
all the math. My husband is an engineer and I am studying accounting
(currently taking a class on Corporate Finance) I know the standard
deduction for married filing jointly is $7600 If we refinanced, our new
itemized deduction would be $8200. Down from the $10,800 we filed this
year. I just want someone to help me understand my husband's logic in
not wanting to refinance. I KNOW we should, but he doesn't want to. In
this one case he is looking short-term rather than the long-term effects
of refinancing.
--
For tax year 2003, standard deduction is $9,500, so you are $325
"penalized" for refinancing in your scenario. Deduction is not a
credit and you only get 25% back (assuming your taxable income is less
than $114,650 for filing jointly). Does your husband understand the
difference between a tax deduction and a tax credit?

greg
 
J

JD

Just out of curiosity when did the news pop up about a $1900 increase on the
standard deduction? It may be old news going along with Bush's tax plan, but
WOW that much and then to be penalized for refinancing? I may have heard
wrong, but can't I somehow deduct my refinancing costs on my taxes?
 
J

John

the increase in the standard deduction is the solution for the so-called
"marriage penalty"
 
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C

Chris Luper

You aren't "penalized". It's good to be in Standard Deduction. That means
that you are receiving a deduction in excess of the deduction you actually
"earned".

We refied this year, and are actually going to be able to deduct a greater
amount this year than we would have if we hadn't refied due to the fact that we
can right off our past loan fees that we were amortizing and due to the fact
that seller paid closing costs are in excess of our origination fee. Plus, we
will hit the new standard deduction either next year or the year after, so we
might get an overall tax benefit by refiing.

Plus, refiing gives you the advantage of compund building your equity. By
investing a little over 10,000 additional in our house ratably over 10 years,
we will get back over 20,000 in equity at the end of our loan. I will take a
guaranteed investment like that right now.

As long as you plan on staying in your house for 5 or more years, a 1.5%
savings as long as your closing costs are reasonable should be a no brainer.
 

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