2008 Married Filing Jointly Tax Brackets
Question: Married Filing Jointly. How does the $10,700 deduction apply to our income tax?
According to the 2008 tax rates & brackets for “married filing jointly with combined income of $105,000,” our tax is $8,962 plus 25% of the amount over $65,100.
This comes out to $8962 + $9975 = $18,937.
Is the $10,700 deduction applied to the $18,937 or is the deduction subtracted from our gross income of $105,000?
Also, we plan on buying a home in Jan/Feb 09. If we paid a total of about $20,000 in mortgage interest next year, will there be a significant tax benefit? Assuming our income is unchanged and we have no other deductions or allowances. Thanks.
Answer: From your total income you will subtract certain deductions such as student loan interest and IRA contributions if they apply to you. From that number you will subtract the standard deduction of $10,700 plus the one personal exemption of $3500 for each member of your household. Assuming there are just two of you, your Taxable Income would be $105,000 – 10,900 – 7000 for a total taxable income of $87,100. The tax on $87,300 would be $14,469.
More importantly is your statement about buying a house. Under the new tax law just passed if you purchase your first home between 4/8/08 and 7/01/09 you are eligible for the first time homebuyers credit. This credit if a refundable credit of up to 10% of the purchase price of the home or $7,500 whichever is smaller.
Because you are purchasing this home in Jan/Feb 09 you have the option of claiming the credit on either your 08 or 09 return. So, even though you didn’t close by the end of the year, you could still claim the credit. Just make sure you close on the home before you file the return. If you don’t you would be able to amend the return to claim the credit.
Here’s the catch. The credit needs to be repaid at the rate of $500 per year for the next 15 years. This amount will come out of your future refunds or added to your future liability.
To answer the last part of your question, yes, $20000 in mortgage interest would have a significant impact on your next return.
Analysis: Taxes for most Ohioans wouldn’t change
Just 1 percent of taxpayers in Ohio earn more than $250,000 in federal tax-able income and would be subject to a tax hike with President Barack Obama’s tax proposal, according to exclusive data from the Ohio Department of Taxation.