At this time of year, most people have some sort of rush situation happening in their lives. Maybe it’s a rush at work to get those annual targets met before you leave for the holidays, or a rush at home to prep for the holidays themselves.
But if you are — or were — a homeowner, there’s a short list of other items you should consider placing on your "rush" list to get done before year’s end that have nothing to do with twinkle lights, animatronic Santas or gluten-laden baked goods.
1. Prepay interest. If you have the cash handy, consider paying your January mortgage payment before December even ends. The interest portion of this payment is actually interest that accrued to your mortgage in 2012. So, if you pay it before the end of the year, it will increase the mortgage interest deduction you’ll be able to take as soon as you file your 2012 taxes (after Jan. 1).
And no, Virginia, you can’t just prepay all of next year’s payments to boost your tax deductions — the January payment applies to December 2012’s interest in arrears. If you prepay for other months in 2013, the IRS requires that you claim that interest on your 2013 taxes.
2. Close on your refi — especially if you’re paying points. If you’re a buyer, it’s almost undoubtedly too late to start and close an escrow this year. But if you’re a homeowner in the process — or even considering — refinancing your home, there might still be time to put the pedal to the medal and close the deal.
Discount points or other prepaid mortgage interest you shell out to close a refinance home loan may be considered fully tax deductible on your 2012 return to the extent that the refinance money covers your original purchase money loan and home improvements. (If you get extra cash out from your refi, your points may still be deductible, but you’ll have to take the deduction over the life of the loan.) So, if you get them paid before the end of this year, you stand to improve your tax situation only when you file next year.
3. Get your property taxes paid. Most taxpayers should be able to qualify to deduct next year’s property taxes, so long as they get them paid by Dec. 31. Two primary criteria apply here:
- You must be what the IRS considers a cash-basis taxpayer (meaning you report income the year you receive it and deductions the year you pay them, on the whole), and
- Your county or other taxing authority must accept prepaid taxes as prepaid taxes — not as a deposit. Check with your tax assessor’s office to see how they handle prepaid property taxes before you make this move with the expectation of getting a big tax deduction boost.
4. Get warm — and tax credits — at the same time. Many cities and states offer meaty tax credits for homeowners who make energy-efficient home improvements, like dual-paned windows, solar systems and tankless water heaters, to name a few. Check your city and state websites for which improvements qualify in your area, then get on the horn, as these can be challenging improvements to schedule when the weather is bad, and the clock’s a-ticking!
5. Settle out a lingering HELOC. If you lost a home to foreclosure and have an old second loan or home equity line of credit (HELOC) still lingering on your credit reports, now might be a great time to approach that lender or servicer and negotiate a settlement. Even if it has been charged off or the servicer is not aggressively pursuing you for it, these old loans — often called sold out junior liens — remain on your credit reports and make it nearly impossible to qualify for a new home mortgage.
Banks like to close their books out at the end of the year, and are generally more willing to settle at lower amounts with people who no longer own the property. Further, the Mortgage Forgiveness Debt Relief Act is, surprisingly, still set to expire on Dec. 31. That means there’s at least a chance that Dec. 31 might be your last chance to settle that lingering second loan or HELOC for less than the full amount without having to pay any income taxes on the forgiven debt.
