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Make Your Mortgage Payment Before the New Year

by retirebyforty on December 27, 2011 · 29 comments

in expenditure, real estate

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make mortgage payment before new year

The electric bill will be high this month.

When do you pay your mortgage? If you are like me, you probably pay the mortgage bill as close to the deadline as possible. This means that most people usually pay around the 7th of every month. (My bank will consider the bill as overdue on the 15th.) However, I make one exception every year to make sure and pay the January payment in December right before New Year’s Day.

By paying before the New Year, I can take the home mortgage interest deduction in a few months – April 2012. If I wait until January 7th, then I won’t get the tax write off until April 2013. Is it really worth your time to change your routine and pay early once per year? You’ll have to answer that one yourself, but I know it is well worth it for us. We have 3 mortgage bills – a primary residence, a rental home, and a 4-plex. All of these payments add up and I can’t ignore the benefit of getting the tax deduction a year earlier.

While you shouldn’t buy a house just for the mortgage deduction, it is still wise to take advantage of any deduction you can. This is especially true for rentals. It is difficult to generate positive cash flow in the early years of a rental property and we need any help we can get.

I know it is not fun to think about taxes during the holidays season, but changing the mortgage payment date is pretty easy to do. Also, if you have been putting off your portfolio maintenance, you only have a few days left to sell off your losers. Once you’ve done these things, then you can enjoy the New Year party without worry.

I just scheduled my mortgage payments to be paid on Friday, December 30th. Do you have any last minute tips for the end of the year? We are going after-Christmas shopping next weekend and that’s about all on our list. After that, we’ll enjoy the New Year at home, probably stay in bed snoozing. ;)

Today’s rate is even lower than in 2011. You should check with Quicken Loans to see if you can lower your payment.
quicken loans refinance

Disclaimer: I am not a tax professional and you will need to verify all the  information above with your accountant before acting on it.


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{ 29 comments… read them below or add one }

My University Money December 27, 2011 at 5:42 am

I’m so jealous of the USA tax deduction on mortgages! I don’t particularly agree with it from a macroeconomic POV, but as a Canadian homeowner I can say that we are certainly an envious breed!

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retirebyforty December 27, 2011 at 10:42 am

I think the tax deduction is a nice little stimulus for home owners. ;)
Do you have other tax incentive to buy a house in Canada? How is your property tax and is that tax deductible?

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My University Money December 28, 2011 at 4:03 pm

It does provide a stimulus for homeowners, but is it a good incentive? Shouldn’t we be encouraging people to pay their houses down as quickly as possible and with as large a down payment as possible? The whole idea of home ownership is coveted by far too many people that it makes no financial sense for. I think people are finally getting the point as rental rates are going up.

We don’t have tax incentives for houses in Canada, but we do have a neat little financial strategy called the Smith Manoeuvre which basically replaces your mortgage with a tax-deductible investment loan. I actually just did a post on this, this week!

Our property tax is pretty high, and not tax deductible.

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retirebyforty December 29, 2011 at 12:27 pm

Yes, I read about the Smith Maneuver on your site. It’s an interesting idea. I wonder why you can get investment interest write off, but not home owner. ;)
Wow, sorry to hear about the property tax. It seems owning a home is much more tax advantaged in the US than Canada.

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Moneycone December 27, 2011 at 5:51 am

Fantastic tip Joe! Agree with you, don’t buy a house for the deduction, but if you do buy a house, make use of the deduction! Money saved is money earned.

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retirebyforty December 27, 2011 at 10:43 am

Thanks! Why wait 15 months to get the tax deduction, right?

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Roshawn @ Watson Inc December 27, 2011 at 5:54 am

“While you shouldn’t buy a house just for the mortgage deduction, it is still wise to take advantage of any deduction you can.”

I so agree with this statement. If you can make it work with your cash flow, it seems very practical to me.

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retirebyforty December 27, 2011 at 10:44 am

Yeah, we have to live somewhere right? I know it is more affordable to rent, but at this point in our lives, we like our own place. :)

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Jeffrey Trull December 27, 2011 at 6:48 am

This is a great tip for any kind of deduction that must be in by the end of 2011 to file for taxes. I’ll make sure to wrap up any charitable giving by the end of the year to take advantage of anything I can.

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retirebyforty December 27, 2011 at 10:44 am

I forgot to mention charity giving. Thanks for the reminder. Only a few days left to wrap everything up.

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Edward Antrobus December 27, 2011 at 7:45 am

I’m going to guess that you did the same thing last year, so you are still ending up with only 12 payments made in 2011. Since you are going for a larger income next year, attempting to make 30k online, maybe it would be better to make this payment in January, and then try this trick next December so you have 13 mortgage payments to deduct next time around.

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retirebyforty December 27, 2011 at 10:47 am

Yes, I did the same last year. :)
However, I still want Jan’s mortgage interest deduction for 2012. Next Jan mortgage interest will be a bit lower since the principle will be less.
Good strategy to move things around though if your income is more predictable.

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Michelle December 27, 2011 at 8:37 am

I always pay mine on the 7th also! I totally forgot to pay next month’s mortgage early though, so I won’t be doing that.

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retirebyforty December 27, 2011 at 10:47 am

There is still a few days left to change. :)

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Sandy - yesiamcheap December 27, 2011 at 9:00 am

My income this year will have me paying taxes up the wazoo. Thanks for the reminder to dump more cash into the mortgage while I can.

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retirebyforty December 27, 2011 at 10:47 am

That means you made tons of money right? ;)

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Edward Antrobus December 27, 2011 at 11:10 am

Unless he’s like me and messed up withholding after changing jobs. Doing a rough estimate, I may not only NOT receive a refund for the first time ever, but have to pay a couple hundred on tax day.

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Aloysa December 27, 2011 at 9:53 am

Great advice! We try doing it every year. In fact we scheduled one on the 30th as well! :-) Great minds think alike you know.

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retirebyforty December 27, 2011 at 10:47 am

Heh heh, great job!

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Judith December 27, 2011 at 10:56 am

THIS IS WRONG INFO
If you pay interest in advance for a period that goes beyond the end of tax year, you must spread this interest over the tax years to which it applies. You can deduct only the interest that qualifies as home mortgage interest for that year.

This is quote from Publication 17 p154

People are reading what you write as gospel and the 2 times I have read this blog your information is out and out wrong or just plain bad.

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retirebyforty December 27, 2011 at 11:30 am

Your Jan. 1 mortgage statement represents interest for the month of December, making it a tax-break-eligible bill for this year.

By accelerating that payment even by just a day, you get an additional tax deduction for the interest paid.

Read more: Cut Taxes With Early Mortgage Payment | Bankrate.com http://www.bankrate.com/finance/taxes/cut-taxes-with-early-mortgage-payment-1.aspx#ixzz1hlU5ofiU

This is why I have the disclaimer at the bottom. I am not a tax professional and the information may be wrong. I’m 99.9% sure the info in this post is correct though. Some banks send out the 1098 form before the end of the year and assumed the homeowner won’t pay the mortgage early. I usually paid early and get a correction 1098 in February or so.
Sorry to get you riled up.
Have a great Holidays!

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PKamp3 December 27, 2011 at 11:13 pm

Haha @ the comments from Canada. I don’t like the deduction as a policy, but I will certainly take full advantage of it this year!

Also, there might be a one time benefit of moving the benefits forward if the MID is taken off the books by a future Congress, or at least scaled down. I know it doesn’t seem likely from where we stand, but I wouldn’t rule out losing it eventually.

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Miss T @ Prairie Eco-Thrifter December 28, 2011 at 12:02 pm

I wish we had tax deductible mortgages in Canada but we don’t. Smith Maneuver is the closest. Glad you can seize opportunity though.

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Robert @ The College Investor December 28, 2011 at 5:54 pm

I did it last year, so now I have to do it this year – it just becomes a wash over time because you keep doing it until your mortgage is gone!

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UltimateSmartMoney December 28, 2011 at 6:42 pm

It’s always good to get every little benefit. I recommend considering charitable donation on your household goods to get quick deduction on your tax return.

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Leigh December 30, 2011 at 11:34 pm

If you always make your January 1st payment at the end of December, then aren’t you getting 12 payments in every year, just like you normally would, so how are you saving any money?

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retirebyforty January 1, 2012 at 6:12 am

You are right about that. You only get the extra saving on the first year.

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lifeoverwork January 25, 2012 at 9:39 pm

A little late to the party on this post, but there’s one thing to consider: You want to clump as many deductions into one year as possible. One thing people often forget is that no matter what, everyone gets the standard deduction ($5800 for 2011). Depending on the size of your mortgage, your interest may not be much more than that! I could see a potential strategy whereby you make 11 payments one year, then 13 the next, specifically to maximize the deduction every other year. In the off years, maybe you just go for the standard deduction. This will only work if you’re right on the cusp of the standard deduction amount, of course.

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retirebyforty January 25, 2012 at 10:04 pm

That’s an interesting strategy if you can make it work. I think someone mentioned that you can’t do that though. You might need to check with a tax professional.

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