my friend told me that the tax-return you receive from the interest payments you make on your mortgage, get included as taxable income in the next year. For instance: you get a tax-return of 7000 in 2007 from interest paments you made in 2006. that $7000 gets included in your 2007 gross income.
Is this true? And if yes, why because it doesn't make sense. I thought corporate dividends were the only thing that's double-taxed.
Thanks!
2007-12-02 13:04:49 · 6 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
Your friend is incorrect. He is confusing interest deductions with state income tax deductions.
If you itemize deductions and take a deduction for STATE income taxes paid, your STATE refund must be included as income on the NEXT year's FEDERAL tax return.
The reason for this is actually quite simple. Your state tax deduction is for the state taxes withheld from your pay plus any estimated taxes paid plus any you paid with your state return, if any. However if you then get a STATE refund, that actually REDUCES the amount of the deduction that you're eligible to claim. The IRS could require you to file an amended return once you got your state refund but that would be needlessly complex and could trigger a requirement to amend your state returns as well. To simplify the process Congress wrote the law such that you claim the excess money refunded to you this year as income on your next year's return. Since you'd actually receive the state refund for 2007 in 2008 it makes sense to claim the refund as income on your 2008 return.
Keep in mind that this rule ONLY applies if you both itemize your deductions AND take a deduction for state income taxes paid. If you take the deduction for state sales tax paid the rule does not apply. And if you take the standard deduction, the rule does not apply.
2007-12-02 15:55:51 · answer #1 · answered by Bostonian In MO 7 · 1⤊ 0⤋
No, your friend is confused. If you got a STATE or LOCAL refund from the previous year, AND you itemized last year and deducted those amounts, then the state and local refunds are taxable income the next year - you deducted them the previous year, then got the money back, and it's never been taxed the first time.
2007-12-02 15:08:14 · answer #2 · answered by Judy 7 · 0⤊ 0⤋
you are able to think of you're a kinfolk however the IRS does not. So the deduction starts off to area out for him at $60,000 that's single and Head of kin the two. that's thoroughly long gone at $seventy 5,000. Married may be two times those quantities.
2016-10-18 22:09:52 · answer #3 · answered by ? 4 · 0⤊ 0⤋
Your friend is very wrong.
State tax refunds are the only thing added back the next year and that is only if you itemized the previous year. (There is a reason for this that I won't go in to.....)
Do not let your friend anywhere near your tax return!!!
2007-12-02 14:47:11 · answer #4 · answered by Wayne Z 7 · 0⤊ 0⤋
I was going to explain to you, but above "Bostonia" explained lot better than I would. Thanks, it helps me too.
2007-12-02 17:10:41 · answer #5 · answered by Q 3 · 0⤊ 0⤋
You and/or your friend are mixed up.
2007-12-02 13:18:35 · answer #6 · answered by Anonymous · 1⤊ 0⤋