Don't Overlook Investment Interest
Generally, You May Also:
- Deduct mortgage "points" (prepaid Interest) in full in the year you purchase or build your main home.
- Choose to spread out the deduction of purchase points over the life of the loan if, for example, you won't have enough deductible expenses to Itemize deductions in 2012.
- Deduct In full, in the year you enter the loan, Points paid on mortgage loans for home improvements.
- Deduct any points you pay to refinance an existing mortgage ratably over the life of the loan.
Don't Overlook Investment Interest
Investment interest is an itemized deduction that's easy to miss. You may deduct interest you pay In 2012 on funds borrowed to buy or carry taxable investments (interest on a margin account, for example). But your deductible interest is limited to your net investment Income for the year, with any excess interest expense you can't deduct currently carried forward to subsequent years, subject to that year's limitation.
Net investment income for this purpose doesn't include net capital gain - or qualified dividends - unless you forgo the favorable tax rate on that Income and subject your gains or qualified dividends to tax at your higher ordinary income-tax rate.
Investment interest is one of several itemized deductions that are not subject to the itemized deduction limitation scheduled to go Into effect for higher-income taxpayers beginning in 2013.
Give To Charity
Making year-end donations can increase your Itemized deduction for charitable contributions. You might:
- Prepay planned 2013 contributions to charity in 2012, using a credit card, If you wish.
- Make year-end charitable gifts of appreciated securities or other property you've held more than one year. You may claim a charitable deduction equal to the full fair market value of the property you donate (subject to certain limitations and restrictions). Such gifts help you avoid the capital gains tax that would apply if you sold the asset first and then donated the proceeds.
- Create a charitable remainder trust if you would like to make a substantial gift to charity but retain an income from the property for life or a period of years. With a chantable remainder trust, you receive a current income tax deduction for a gift that will actually be made in the future.
Get professional advice about the tax aspects of property donations and charitable trusts before you make a commitment.
Add Up "Floor Expenses"
Certain Itemized deductions are subject to "floor" amounts set by law. Only amounts over and above the floor are deductible. Looking at your deductible expenses now may save you from an unpleasant surprise at tax time. Deductions subject to floors Include medical expenses, which are deductible only to the extent they exceed 7.5% of your AGI in 2012, and unreimbursed employee business expenses and miscellaneous expenses, which are deductible only to the extent they together exceed 2% of AGI
One way to deduct more of your medical and miscellaneous deductions is to "bunch" two years of expenses into one year so you exceed the deduction floor. To boost your deductions for 2012, consider:
- Paying 2013 professional dues, subscriptions, and investment management fees in late 2012. These are all included in the "miscellaneous" category.
- Scheduling elective surgery, dental work, and eye appointments for late 2012. If you'll incur deductible out of-pocket expenses in 2012.