In the times of economic hardship, the refinancing of your home may seem like the only option. Refinancing represents an opportunity to reduce your monthly payments as well as reduce the total interest you will pay for the term of your mortgage.
What does this mean for your taxes?
As a homeowner, you have the benefit of deducting the interest you pay on your loan on your return using the long form. Generally, this amount can be high and consequently represent a substantial deduction to your taxes.
When deciding to refinance, one of the key points to make this decision is to calculate how much you will save by making this decision. One of the easiest ways to reduce your loan payments and also reduce your total debt is by negotiating a lower interest rate.
This lower rate definitely benefits you have not only in the short term but also in the long term since you will pay less in total for the term of your mortgage. However, when calculating whether it benefits you or not, you should take into account that your deduction of interest in submitting your return will also decrease and consequently the amount you save in total also decreases.
You can estimate current savings after incorporating taxes by multiplying the total savings in interest by your tax rate. For example, if you calculate that you would save $10,000 in interest for the term of the new mortgage and you are in the tax rate of 25%, then your savings after impact on your taxes would be $ 7,500.
It is possible that you should refinance anyway, the important thing is that you incorporate the impact to your taxes when doing the corresponding analysis. Depending on your tax rate, the difference may be significant.
Other Factors To Take Into Account When Refinancing
It is important to refinance for the appropriate reasons. This usually means that refinancing will put you in a more beneficial financial situation. Good reasons to refinance include the following;
- Get a lower interest rate
- Convert your interest rate to a fixed rate
- Getting a mortgage on a home that has already been paid, which usually homeowners do this to get cash.
- Get cash to pay off other higher interest rate debts
- Get cash to buy other properties
- Consolidate mortgages
- Solve family problems such as divorce
If your purpose is to get a lower tax rate, make sure that the one you are offering is the lowest depending on the market. Talk to your bank representative and other banks to compare and ensure that you understand all the additional charges that are included. The cost of refinancing can be high and the savings for the lowest rate could be less than the total additional expenses, which may not be worth it. For best advice, please contact Thomtax APN service.
What Should I Do If I Owe Taxes?
If you owe taxes, whether for the present year or for previous years, the first thing you must do is to fill out a tax return, so that you know exactly how much you owe. Once your accountant sends the return, the tax department will send you a letter informing you of the exact amount. You should note that there are monthly penalties and interest charges implemented if you pay your debt after the due date. The longer you wait, the more debt will increase. Once you know what your current debt is, there are several payment options available.
If it is within your means to pay the total of your debt, you will avoid further penalties and interest. You can do this in several ways i.e. by sending a check or money order to the tax department included in the letter received or by bank transfer from your bank account.
If you need more time to pay, the tax department gives you a 120-day grace period to pay your debts free of charge, but interest will continue to accrue until the balance is paid in full.
If you cannot pay your full debt immediately or within 120 days, you can make a payment agreement; you must determine how much you can pay monthly. It is important that you ensure that the amount you agree to pay each month is the appropriate amount to avoid breaching your agreement.
To apply for a payment agreement, complete 9465 Request for a Payment Agreement and visit the official website to find the application. You can also make your payment agreement by calling the phone number included in your bill. There is a $105 charge for the payment agreement, and if you opt for automatic deduction of your bank account, the charge is only $52. Certain low-income taxpayers may qualify for a reduced fee of $43.
Offer of Transaction
If you feel that your financial situation does not allow you to pay your total debt and you do not think it will change to allow you to do so in the future, you have the option to make an offer to the tax department which offer will allow you to decide how much you can pay out of your total debt, but the offer of transaction does not automatically mean that your debt will be reduced to the amount offered.