I'm going to have to take required withdraws soon. I thought I could start pulling money out of my traditional IRA against my mortgage interest deductions.
There are no limits on the amount that you can withdraw from your IRA. If you are older than 59-1/2 there will be no penalty for withdrawing. You will add the withdrawn funds to your other income for the year and be taxed on your total income.
Sounds like you are confused about taking a distribution from an IRA for the down payment. If you are younger than 59 1/2 there is not an early withdrawal penalty for taking out up to $10,000 from a traditional IRA for a down payment on a first house.
If you are just taking out money to make your mortgage payments you will be taxed on the distribution at your tax rate. You will receive a 1099R that you will need to enter on your 2021 tax return
To enter your retirement income, Go to Federal> Wages and Income>Retirement Plans and Social Security>IRA 401 k) Pension Plan Withdrawals to enter your 1099R.
And as far as deducting the mortgage interest:
Many taxpayers are surprised because their itemized deductions are not having the same effect as they did on past tax returns. The new higher standard deduction and the elimination of certain deductions, as well as the cap on state and local taxes have had a major impact since the new tax laws went into effect beginning with 2018 returns.
Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund. The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach. (Only the amount that is MORE than 7.5% of your AGI counts) The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you. Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes.
2021 STANDARD DEDUCTION AMOUNTS
SINGLE $12,550 (65 or older + $1700)
MARRIED FILING SEPARATELY $12,550 (65 or older + $1350)
MARRIED FILING JOINTLY $25,100 (65 or older + $1350 per spouse)
HEAD OF HOUSEHOLD $18,800 (65 or older +$1700)
Legally Blind + $1350
@pascajams wrote:
I'm going to have to take required withdraws soon. I thought I could start pulling money out of my traditional IRA against my mortgage interest deductions.
When is "soon"? Do you have a required withdrawal (RMD) for 2021? Money that you withdraw in 2021 will not count towards a 2022 RMD.
If you never made nondeductible contributions to the IRA, any amount that you withdraw is added to your taxable income. Your taxable income is reduced by the amount of your mortgage interest deduction. So a $2,000 mortgage interest deduction will offset a$2,000 withdrawal from your IRA, if that's what you're trying to do.
Two other cautions:
1. Make sure you are actually getting the mortgage interest deduction. This plan doesn't work if your itemized deductions are not more than your standard deduction.
2. There are limitations on the mortgage interest deduction. You might not be able to deduct the full amount of interest that you pay. Make sure you know how much you are actually able to deduct.
@pascajams wrote:
I'm going to have to take required withdraws soon. I thought I could start pulling money out of my traditional IRA against my mortgage interest deductions.
If you mean that you and to offset the tax on IRA distributions up to the deduction you might receive for claiming mortgage interest as I think is what yiu are asking then:
It does not work that way. You don't get a "mortgage interest deduction' unless you can itemize and you only itemize if all your itemized deductions are more than your standard deduction, and if they are then the mortgage interest might be limited.
Your question is not possible to answer because we do not know all of your tax information.
This is how itemized deductions worked for 2020 - 2021 will be slightly different amounts.
For 2018 - 2020 many taxpayers that itemized in the past will find that they can no longer itemize because the standard deduction has doubled so all of their itemized deduction s no longer exceed the standard deduction.
Only if all itemized deductions exceed the standard deduction will it be of benefit.
Not all itemized deductions count the full amount. Medical expenses are reduced by 7.5% of AGI so if your AGI is $30,000, for example, then only medical expenses more than $2,250 would be an itemized deduction.
The 2018 tax law also caps the total of Sales tax OR State and local income tax, Property (real estate and personal property) taxes at $10,000.
Mortgage interest on loans after Dec 16, 2017 may be limited.
The Mortgage must be secured by the property to qualify.
Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan.
2020 standard deductions
$12,400 Single
$18,650 Head of Household
$24,800 Married Jointly
Add an additional $1,300 for over age 65 or blind
This amount increases to $1,650 if the taxpayer is also unmarried.