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Page 24 THE SOUTHERN ISRAELITE December 1 9, 1 986
Business
Owning a home
Homeowners, take notice.
After Dec. 3 I. the tax reform act
will take away the opportunity
for all taxpayers to fully deduct
their interest payments on per
sonal credit debts. But, you have
an option. By using the equity in
your home, you will still be able
to linance a new car or your
child's education, according to
the Georgia Society of CPAs,
and take a lull tax deduction for
the interest payments.
Beginning in 1987, taxpayers
will lose one of the most fre
quently used deductions on their
tax returns the personal inter
est payment deduction. Next year,
interest payments on personal
loans, student loans and credit
cards will he only 65 percent
deductible on your income tax.
In 1988 they will be only 40 per
cent deductible, 20 percent in
1989 and 10 percent in 1990. Bv
1991, taxpayers will not be able
to take t his deduction at all. Asa
homeowner, however, you may
be able to use the equity in your
home to refinance these personal
loans and still fully deduct the
interest.
How does this work? Here’s an
example. Suppose Mr. and Mrs.
Smith own a house worth $ 150,000
w hieh they bought for $ 120,000 a
few years ago and they still owe
$70,000 on their mortgage. Since
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BUSINESS VALUATIONS
estate planning • stockholder disputes
charitable gifts • taxes • esops
acquisitions/divestitures • divorces
Contact: Mitchell Kaye, C.F.A.
(404) 973-6214
American Society of Appraisers
Vice President—Atlanta Chapter
The Institute of Chartered Financial Analysts
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HOME
FEDERAL
Wishes all of you a Happy and Healthy
Holiday Season.
HOME
FEDERAL
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Marietta. GA 10067
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Atlanta. (.A 10128
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is still a good investment
most banks will limit borrowing
to 80 percent of market value, we
can figure the additional amount
they can borrow by taking the
market value of the house and
multiplying it by 80 percent, then
subtracting the amount they still
owe on the mortgage ($150,000
times 80 percent equals $120,000
minus $70,000). Therefore, the
Smiths can borrow up to $50,000
in equity on their home.
One important exception in
the new law would allow the
Smiths to borrow more money
and deduct the interest under
certain circumstances. If their
daughter, Mary, was ready to go
to college, they could borrow in
excess of the original purchase
price of their home as long as the
money that exceeded that amount
was used for her education. I hey
could also use this excess money
to make more improvements on
their home or to pay medical
expenses. Taxpayers who refi
nanced their homes before Aug.
16, 1986, can still fully deduct
interest up to the amount bor
rowed, even if it exceeds the pur
chase price of the home.
People w ho bought their home
many years ago may find that
they do not have the same deduc
tibility benefits, dollar for dollar,
that newer homeowners have.
If ihe Jones family bought a
home similar to the Smiths' 10
years ago, the cost w’ould have
been considerably less and they
would probably have a larger
portion of their mortgage paid
off. But. the difference between
the original purchase price of the
house and its present market
value w ill limit their tax-deducti
ble borrowing power. They can
still borrow in excess of the orig
inal purchase price of their home,
but the money can only be used
to pay for improvements, educa
tion and medical expenses if they
want to take a deduction for the
interest payments.
Usually, there are fees involved
with taking out an equity loan
just as there are fees for a mort
gage-title insurance, attorney’s
fees, appraisal and application
fees—which in some cases can
equal 5 percent of the approved
line of credit. In this case, it
might be more economical to
take out a regular consumer loan,
pay a higher interest rate (which
is usually the case) and lose part
of the interest deduction over the
phase-out period of the tax
reform law.
What about your original
mortgage? Under the new tax
laws, you will still be able to take
a deduction for your interest
payments on a mortgage for your
primary residence as well as for a
mortgage on a second home. A
house is deemed to be a second
home as long as you use it for at
least 14 days a year.
What other tax benefits do
you get from owning a home?
The deduction for property taxes
w ill continue to be available under
the new tax laws. Also, if you
plan on selling your home, you
w ill still be able to defer the taxes
on the profits from the sale if you
reinvest the proceeds within two
years in another home which
costs at least as much as the one
you sold. If you are 55 or older,
you can also take advantage of
the one-time exclusion of $ 125,000
on your profit.
If you find that you are not
eligible for the exclusion or if you
plan to rent or buy a less expen
sive home, any recognized tax
gain you make on the sale w ill be
taxed at a maximum rate of 20
percent this year, but that will
rise to a maximum of 28 percent
in 1987.
Under the new tax law, your
home will provide a substantial
line ol tax deductible credit, if
necessary. It will offer a lull tax
deduction for interest paid on
this credit, in most cases, and it
w ill still be a good investment.
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