Daily Mortgage Update

Take advantage of every tax break

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The Recovery Rebate Credit. The stimulus checks issued last year assumed you'd earn as much in 2008 as you did in 2007. If your 2008 earnings dropped considerably, or if you had a baby, you might qualify for a bigger rebate if you didn't already receive the maximum allowed ($600 for an individual and $1,200 per couple, not counting kids.)

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To calculate whether you qualify for a bigger rebate, see the instructions and worksheet starting on page 61 of the Form 1040 instruction booklet. Or, enter RRC on line 70 of the Form 1040 and the IRS will do the calculation for you. If you’re eligible for additional money it will be added to your regular refund.

The First-Time Homebuyer Credit. The credit of up to $7,500 applies to home purchases made after April 8, 2008. Note that it's a credit, not a deduction, so it reduces your tax bill on a dollar-for-dollar basis. If the credit is more than the tax you owe, the balance will come back to you as a refund.

The credit is 10% of the home purchase, up to $7,500 for single filers and those who are married filing jointly. Eligibility phases out for higher-income filers and the repayment period begins in the second year after the credit is claimed.

Unfortunately, there's a big catch that usually makes us discourage homebuyers from taking advantage of this tax credit -- you have to pay it back over the next 15 years when you file future tax returns. It's a loan, not a grant. But if you need money now, it can definitely boost your cash flow.

There's a new standard deduction for property taxes. Previously, only filers who itemized got a break based on real estate taxes they paid. Now, those who don't itemize can boost their standard deduction by up to $500 for single filers and $1,000 for those married and filing jointly.

Forgiven mortgage debt is no longer taxable. When a lender forgives a debt the government usually considers that benefit to be taxable income. But for most homeowners, amounts forgiven in 2008 through bail-out and refinancing programs will be tax-free up to $1 million. You'll need Form 982 to take advantage of this break.

Be sure not to overlook existing credits, like the Earned Income, Child Tax and Dependent Care credits. The guidelines for those and the ones listed above are in the Form 1040 instruction booklet.

More detailed instructions and examples are in the Internal Revenue Service's Publication 17.

And finally, don't pay to file your return electronically. Starting Jan. 16, returns with adjusted gross incomes of up to $56,000 can use the government's Free File service.