1. INTEREST ON REFINANCED MORTGAGES:

The IRS has confirmed that “qualified home mortgage interest”, which generally is deductible for Alternative Minimum Tax (AMT) purposes, DOES include interest paid on a mortgage that has been refinanced more than once.

The IRS stated in Revenue Ruling 2005-11, that a refinanced mortgage qualifies IF the refinancing did not increase the total loan amount.

This ruling may affect the amount some taxpayers report as a home mortgage interest adjustment on Form 6251, “Alternative Minimum Tax - Individuals” Revenue Ruling 2005-11 and Form 6251 are available on the IRS Web site, www.irs.gov.

The revenue ruling will also appear in the upcoming Internal Revenue Bulletin 2005-14, scheduled to come out on April 4, 2005.

2. HOME OFFICE DEDUCTION:

Whether you are self-employed or a W-2 employee, if you use a portion of your home “exclusively and regularly” for business purposes, you may be able to take a home-office deduction. 

Here are the rules…

• You can deduct certain expenses if your home office is the “principal place” where your trade or business is conducted, OR if your home is where you meet, present to, or deal with clients, customers or prospects in the course of your business.
   

• Your home office will qualify as your “principal place of business” if you use it exclusively and regularly for the Administrative or Management activities associated with your trade or business. There must be no other fixed place where you conduct substantial administrative or management activities.

NOTE:

The following is a HUGE EXCEPTION change for Real Estate Agents and others work from a home office BUT ALSO from an available “business location office”:

• If you use both your home, and also other locations, regularly in your business, you must determine which location is your principal place of business, based on the “relative importance” of the activities performed at each location. If the “relative importance factor” doesn't determine your principal place of business, you can also consider the time spent at each location.
   

• If you want to claim a home office deduction as a W-2 employee, you have additional requirements to meet. You can take the home office deduction ONLY IF the business use of your home is for the convenience of your employer, not for your own convenience.  If your employer is paying you rent for use of a home office, that kills your home office deduction.

See Chapters III and IV of my book, It’s How Much You KEEP, That Counts! Not How Much you Make for an explanation of the types and amounts of deductions you could be eligible for.

Save a Bundle!

Ron Mueller is the author of It's How Much You KEEP, That Counts! Not How Much You Make and founder of www.HomeBusinessTaxSavings.com, where he offers expert tax help and private one-on-one coaching.