Second Home Mortgage Tax Deduction for 2009

A mortgage interest tax deduction is a deduction that you take against your first and second homes to reduce your tax liability. This deduction was placed into law to help encourage Americans to purchase homes.

Owning a second home is a luxury that many like to enjoy but it does not yield many tax deductions or credits. One of the few deductible expenses on a second home is the home interest tax deduction. You can also deduct your property taxes on both homes.

The limit on the amount that can be deductible is a home mortgage amount that does not exceed $1,000.000.00 on both your first and second homes combined.

In order to take any of these deductions, you must itemize. Make sure that your standard deduction is not higher than adding up all of your itemized deductions. This will help you get the most deductions possible and lower your tax bill.

Can I take the deduction if I rent out my second home?

You can take this deduction as long as you resided at the second property for at least 14 days of the year for personal use. If you do rent it out for a portion of the year, you must use the home for personal use for at least 10% of the amount of time that it was being rented out. If you do not qualify due to the amount of time you rented out the property then it will fall under business expenses.

Top seven tips for taxpayers starting a new business

Anyone starting a new business should be aware of their federal tax responsibilities. Here are the top seven things the IRS wants you to know if you plan on opening a new business this year.

1. First, you must decide what type of business entity you are going to establish. The type your business takes will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation and LLCs.
   
2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
   
3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
   
4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
   
5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
   
6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
   
7. Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.

Claiming a deduction for your home office

Taxpayers who use a portion of their home for business purposes may be able to take a home office deduction if they meet certain requirements.

To claim a business deduction, you must use part of your home for one of the following two reasons:

1. Exclusively and regularly as either: your principal place of business, or as a place to meet or deal with patients, clients or customers in the normal course of your business. Where there is a separate structure not attached to your home, the regular and exclusive use does not need to be your principal place of business as long as the use is in connection with your trade or business.
   
   
2. On a regular basis for certain storage use -- such as storing inventory or product samples -- as rental property, or as a home daycare facility.

Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.

There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

If you are self-employed, use Form 8829 to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040.

For more information see IRS Publication 587, Business Use of Your Home, available at IRS.gov or by calling 800.TAX.FORM (800.829.3676). Also, feel free to contact us at (954) 840-4942.