In your mailbox soon and new this year, Form 1098, which contains your mortgage interest paid for the previous tax year, now reports new information which may trigger an IRS audit.
This form now reports:
* Outstanding principal balance as of the beginning of the tax year
* The origination date of your mortage
* The address of the home securing the loan
What could the IRS want with this information? Home mortgage interest deductions are one of the largest allowable tax write-offs and are somewhat complicated. First, the rules governing deductible home mortgage interest:
* Acquisition debt, on a principal residence, up to $1 million and,
* $100,000 of home equity debt
Acquisition debt is when you buy, build or substantially improve your property while home equity debt interest remains deductible for reasons other than the aforementioned.
So, what could be a red flag for the IRS? Refinancing and large mortgage balances could earn a closer review once your data is fed into IRS computers.
Be sure you understand the rules and only claim what you are entitled to under the law.