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      01-01-2020, 06:35 PM   #1
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Reducing federal tax withholding for mortgage

I'm in the process of buying my first home and I'm told it's a common practice for people to claim more allowances on their W-4. The idea sounds simple enough, get a larger paycheck and come tax time the mortgage interest and property tax deductions would even out the tax bill.

Has anyone from CA actually done this? If so, mind if I ask how many allowances you put on your W-4? Short of talking to a CPA, the figure I'm crunching out is a whopping 8 allowances!

For reference, my budget is well below the 750k loan cap for the mortgage interest deduction. The property taxes in the area I'm looking at are also below the $10k cap.
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      01-01-2020, 06:38 PM   #2
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Go to IRS.Gov and find the W4 form and instructions. There are pretty straightforward instructions with tables, etc to determine how many allowances to claim. However under current tax law the standard deduction is so large that you may not be able to claim as many as you expect if you’ve been talking to someone who did this many years ago.

8 may sound like a lot, but when I lived and worked and owned a house in CA I was claiming over 20 (under the prior tax law).
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      01-01-2020, 06:46 PM   #3
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Just ask your accountant, not a forum with a bunch of car guys.
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      01-01-2020, 07:42 PM   #4
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This doesn't apply any longer, unless you are paying a ton of $ in interest on your mortgage. Since 2017 tax reform standard deduction has been doubled and for most ppl this amt is higher than itemized deductions they used to come up w.

Again this is based on assumption your mortg int and loan are not sky high and you have no other large things you can itemize to get you over std deduction threshold. Given you are in CA I guess anything is possible.

I am corp tax cpa.
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      01-01-2020, 07:48 PM   #5
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I am not a CPA but isnt OP's logic what screwed a ton of people in the 'blue' states when the new tax law went into effect? People who were taking larger deductions during the year and didnt change their strategy ahead of the new tax rules found themselves owing large amounts to the IRS? At least in the tri-state area.
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      01-01-2020, 08:07 PM   #6
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With the new tax law, it was much more convenient for me to just claim the standard deduction instead of itemizing. I have to claim myself and if I claim more, I owe even more money. It all depends how much mortgage interest you have and how much you earn.
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      01-01-2020, 08:20 PM   #7
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State taxes including property taxes are now capped at $10,000.

Standard deduction is now $12k single and $24k for married.

Many people even with a house will still end up taking the standed deduction and the W4 calculates the right taxes based on the standed deduction.

As long as you have money on the side in case you gamble goes wrong, that's fine. But if you don't have money on the side don't mess to the allowances, at least for the first year to see how things work out.
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      01-01-2020, 08:20 PM   #8
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OP is in Cali. The Trump tax bill changed everything for you. Get up to date advice from a professional.
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      01-01-2020, 08:24 PM   #9
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Under the new law, I got screwed out of being able to deduct the mortgage interest and taxes on my second home. I guess the only thing I can be happy about is that the mortgage interest on my second home is 3.25% fixed for 30 years.

And there are other deductions I got screwed out of but those are not related to the topic of mortgage deductions on taxes.
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      01-01-2020, 08:33 PM   #10
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Quote:
Originally Posted by 2000cs View Post
Go to IRS.Gov and find the W4 form and instructions.
This is exactly how I got the 8 allowance figure.

Quote:
Originally Posted by Yugo View Post
This doesn't apply any longer, unless you are paying a ton of $ in interest on your mortgage.
For the places I'm looking at, a year's worth of mortgage interest is about $22k and property taxes about $7k.

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Originally Posted by DocL View Post
Just ask your accountant, not a forum with a bunch of car guys.
That's my plan if I go this route. Just looking for a quick sanity check here.
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      01-01-2020, 08:42 PM   #11
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Originally Posted by capt_slow View Post
...That's my plan if I go this route. Just looking for a quick sanity check here.
Now that's sane thinking.

All I know is no matter how I approach my taxes, I always seem to not make enough.
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      01-02-2020, 01:53 AM   #12
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I'm not a CPA but if you ask my kids this question: if you make half million a year.in California how much money do you have after taxes they will always tell you zero.

I wouldn't change the deductions. $7000 in property taxes means do you have $3000 in state taxes you can write off. You will probably max that out. You won't take the standard deduction with all that interest. Trump really f*{%~£? California. This is one of the few states that if you own a house your taxes went up big time after "trumps tax cut."
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      01-02-2020, 02:08 AM   #13
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Talk to your CPA and if they let you do an allowance of 8, fire them. You left out a lot of details to get the proper input on this topic - what’s your budget for the house, what size loan (mortgage interest capped on loans at 750k), estimated state taxes, etc.

SALT deductions were severely curtailed for someone in typical CA situation with Trump tax cut so I would think twice about changing your withholding because you think you’re going to offset with property tax and mortgage interest deductions.
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      01-02-2020, 02:30 AM   #14
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Quote:
Originally Posted by AlpineWhite_SJ View Post
Talk to your CPA and if they let you do an allowance of 8, fire them. You left out a lot of details to get the proper input on this topic - what’s your budget for the house, what size loan (mortgage interest capped on loans at 750k), estimated state taxes, etc.

SALT deductions were severely curtailed for someone in typical CA situation with Trump tax cut so I would think twice about changing your withholding because you think you’re going to offset with property tax and mortgage interest deductions.
You're right, I did leave out some of the details. Modified my OP.

I know a lot of people at work that got burned by the Trump tax cuts. One bought a home in the middle of that tax year, they were disappointed come tax time.
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      01-02-2020, 02:58 AM   #15
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Quote:
Originally Posted by capt_slow View Post
You're right, I did leave out some of the details. Modified my OP.

I know a lot of people at work that got burned by the Trump tax cuts. One bought a home in the middle of that tax year, they were disappointed come tax time.
Best advice is still to get with your CPA and have them model it. Should be a simple fee for time spent on the modeling and they can use your prior year returns with more specifics than you should be comfortable sharing here to give you an idea of how buying the property you’re thinking of will change your situation. We did that prior to buying our first home and it was helpful to know how our cash flow and taxes would change.
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      01-02-2020, 07:38 AM   #16
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Quote:
Originally Posted by eluded View Post
I'm not a CPA but if you ask my kids this question: if you make half million a year.in California how much money do you have after taxes they will always tell you zero.

I wouldn't change the deductions. $7000 in property taxes means do you have $3000 in state taxes you can write off. You will probably max that out. You won't take the standard deduction with all that interest. Trump really f*{%~£? California. This is one of the few states that if you own a house your taxes went up big time after "trumps tax cut."
Trump didn't just F' California. I don't live in California and he F'd me pretty good. Aside from the deductions I did have for my second home which are no longer eligible, he took away some business deductions I had before, and deductions I could have had to offset the huge cost of my divorce (which I find hypocritical since he's gone through a number of divorces). Thank goodness I had a written agreement in place just in time to be able to write off spousal support before the new tax law went into effect. If that hadn't happened, I would be in an even worse situation.
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      01-02-2020, 07:57 AM   #17
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Everyone keeps trying to make this a political post when it is not.

OP - there have been at least 2 CPA's that have commented in this thread - I am number 3. Follow our advice over the yahoo's that don't have experience in this matter. Go talk to a proper CPA or at least a tax professional in your area. There are many variables that go into this determination that you are not detailing out in your posts here. Any half way decent tax pro can run some calculations and come up with the exact number of deductions that will best suit your individual situation. They will likely not charge you very much for this service.
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      01-02-2020, 09:29 AM   #18
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Quote:
Originally Posted by Run Silent View Post
Everyone keeps trying to make this a political post when it is not.

OP - there have been at least 2 CPA's that have commented in this thread - I am number 3. Follow our advice over the yahoo's that don't have experience in this matter. Go talk to a proper CPA or at least a tax professional in your area. There are many variables that go into this determination that you are not detailing out in your posts here. Any half way decent tax pro can run some calculations and come up with the exact number of deductions that will best suit your individual situation. They will likely not charge you very much for this service.
And before you go, think about what your goal is. Do you want to have exactly the right amount withheld so you owe no taxes on April 15, 2021? Do you want a large refund (on the zero interest loan you provided to the federal government)? Do you want to owe, but not so much that you incur a penalty for under withholding? That will help the CPA to help you.
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      01-02-2020, 10:28 AM   #19
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Originally Posted by Run Silent View Post
OP - there have been at least 2 CPA's that have commented in this thread - I am number 3. Follow our advice over the yahoo's that don't have experience in this matter. Go talk to a proper CPA or at least a tax professional in your area.
Thanks for all the responses. I'm in the very early stages of the home-buying process. When I move farther along, I'll ask a CPA to help me on this. Definitely not going to mess with my W4 until it has their blessing.

Quote:
Originally Posted by 2000cs View Post
Do you want to owe, but not so much that you incur a penalty for under withholding? That will help the CPA to help you.
This. I claim 2 allowances (1x for being single, 1x for single income), my Federal tax bill last year was $60 after taking the standard deduction.
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      01-02-2020, 10:49 AM   #20
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Quote:
Originally Posted by capt_slow View Post
my Federal tax bill last year was $60 after taking the standard deduction.
I'm no Ferrari-driving CPA, but you're doing it wrong
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      01-02-2020, 11:04 AM   #21
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What is wrong about this?
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      01-02-2020, 11:17 AM   #22
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Quote:
Originally Posted by capt_slow View Post
Quote:
Originally Posted by Run Silent View Post
OP - there have been at least 2 CPA's that have commented in this thread - I am number 3. Follow our advice over the yahoo's that don't have experience in this matter. Go talk to a proper CPA or at least a tax professional in your area.
Thanks for all the responses. I'm in the very early stages of the home-buying process. When I move farther along, I'll ask a CPA to help me on this. Definitely not going to mess with my W4 until it has their blessing.

Quote:
Originally Posted by 2000cs View Post
Do you want to owe, but not so much that you incur a penalty for under withholding? That will help the CPA to help you.
This. I claim 2 allowances (1x for being single, 1x for single income), my Federal tax bill last year was $60 after taking the standard deduction.
When I brought my house I adjusted my withholding as per the lender I was working with at the time. If you're hit with a large tax bill then adjust the withholding or increase charitable donations prior to April 15 to lower the amount you owe on April 15. You can use a credit card for charitable donations if you don't have cash at the moment and also earn points which aren't taxed. (Though you cant do that for the prior tax year now so maybe contribute for prior tax year IRA instead)
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