Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 10, 1992 TAG: 9202080113
SECTION: BUSINESS PAGE: A-9 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
ITEMIZING HELPS MOST TAX FILERS
When Americans filed their first federal income tax returns in 1914 they were allowed to deduct "all interest paid within the year on personal indebtedness."That's gone now.
Although most mortgage interest remains fully deductible, there is no longer a deduction for consumer interest charges, including credit cards, automobile loans and borrowing for education. The latest gradual reduction of the writeoff for personal interest began in 1987 and was completed in 1990.
That trend also is likely to reduce still further the number of taxpayers who itemize their deductions. Only about 30 percent of returns filed in 1991 itemized, compared with more than 40 percent in 1985.
Should you itemize?
As a rule, a taxpayer filing itemized deductions saves more money than one who takes the standard deduction. The latter is generally $3,400 for a single person under the age of 65; $4,250 for someone 65 or older; $5,700 for a couple filing jointly and under 65; and $5,000 for a head of household.
Itemizing still benefits most homeowners because of the mortgage interest deduction. In calculating that deduction, the key date is Oct. 14, 1987.
For mortgages incurred before that date, all interest is fully deductible - so long as the loans did not exceed the market value of the home the day before.
For mortgages taken out on or after Oct. 14, 1987, interest is fully deductible if they were used to buy, build or improve the home and if Itemizing still benefits most homeowners because of the mortgage interest deduction. the loans, when combined with earlier outstanding mortgages, totaled $1 million or less. Interest on another $100,000 of home-equity loans for any purpose also is deductible.
Regardless of the date of the loans, the deduction may be divided on mortgages for a principal home and a second residence.
If you refinanced a pre-Oct. 14, 1987, mortgage to get a lower interest rate and ended up with a new loan that is no larger than the balance of the old, all the interest on the new mortgage is deductible. But if the refinanced loan is bigger, the $1 million and $100,000 limitations come into play.
Mortgage discount points or loan-origination fees paid in 1991 may be deducted in full on your 1991 return only if the loan was used to buy or improve your main home, and if the points were in line with what is customarily charged in your area.
Points must be deducted over the life of the loan if either of those tests is not met. In general, points paid to refinance a mortgage must be deducted gradually over the life of the loan.
Publication 936, free from the IRS, contains considerable detail on mortgage interest and points.
Other itemized deductions:
Medical. Deduct unreimbursed expenditures for medical expenses, including prescriptions, doctors' and dentists' fees, medical insurance premiums, eyeglasses, hearing aids and transportation - but only those expenses that exceed 7 1/2 percent of your adjusted gross income. A new law allows deduction of expenses of cosmetic surgery only if needed to correct a disfigurement arising from a birth defect, disease or accident. Tummy tucks are out.
Taxes. Income and real-property taxes paid to a state or local government are fully deductible. So are personal-property taxes on cars and boats if they are based on value and not on weight.
Investment interest. The deduction is limited to an amount equal to total net investment income.
Contributions. Donations to recognized charities are deductible, generally up to half your adjusted gross income. If you received a benefit in return, only the part of your contribution over the value of the benefit is deductible. Out-of-pocket expenses of helping a charity are deductible, but the value of your services is not. If you gave goods worth more than $500, report those contributions on Form 8283.
Losses. You may deduct non-business losses caused by fire, theft, storm or other casualties, but not by breakage or misplacing. Subtract the first $100 of the loss and deduct only the portion of the remainder that exceeds 10 percent of your adjusted gross income. You will need Form 4684.
Moving. Some expenses of a job-related move may be deducted if your new job is at least 35 miles farther from your old home than was the old job. You qualify, for example, if your old job was one mile from home and your new job is at least 36 miles from the old home. See Publication 521.
Miscellaneous. Certain expenses relating to your employment or investments, such as union dues, tools and investment advice, are deductible but only that part of the total exceeding 2 percent of adjusted gross income. A few miscellaneous expenses may be written off without regard to that limitation, including gambling losses that do not exceed winnings and some work expenses of a handicapped person.