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Refinancing Your Home? Look Before You Leap! NAEA Warns Consumers of Possible Tax Consequences
With mortgage interest rates at a 30-year low, many taxpayers are thinking about refinancing the family home. Others are considering making home improvements and/or replacing high-rate, non tax-deductible credit card debt with lower interest, tax-deductible home equity loans.
The National Association of Enrolled Agents (NAEA), however, cautions consumers to investigate all offers and solicitations which promise lower rates and tax savings -- since their ultimate consequence may be adverse tax liabilities.
One widely advertised and highly attractive loan -- worth up to 125% of the value of one's home -- may be a prescription for disaster, warns NAEA, because not all of the interest on such a loan may, in fact, be tax-deductible.
And NAEA -- whose 10,000 members are the only tax professionals licensed by the federal government to represent taxpayers before the Internal Revenue Service -- has learned that the IRS will be looking closely at such loans to ensure that taxpayers are deducting the correct amount.
In the long run, NAEA President Gregory H. Steinbis of Morgan Hill, California, thinks taxpayers are better off by looking closely at their situation and avoiding loans worth more than the value of their homes: "You don't want to find yourself in a position of having to sell your house in an emergency," says Steinbis, an Enrolled Agent and CPA, "and discovering that you've eaten up all of the equity in your home -- yet still need to come up with more money to settle the loan."
Tax laws are subject to change at any time.
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