5 tax breaks you can still grab

By Jeff Schnepper

Congratulations. You sent your 2008 tax return to the Internal Revenue Service on time. You even got a refund, in addition to the $600 tax rebate you qualified for based on your lower 2008 income level.

I'm sorry to have to wipe that smile off your face, tenacious taxpayer, but you left money on the table. Not to worry, though. With a little effort, you can get the money back and perhaps find a way to save on your 2009 taxes.

Most of us remember to deduct mortgage interest, property taxes, state income taxes and the like. But there are some tax breaks we sometimes fail to use. Here are five of the biggest breaks that get missed:

Excess Social Security taxes

If you're an employee, you pay a Medicare tax of 1.45% of your wages plus a Social Security tax of 6.2%. Though there's no limit on wages subject to Medicare, your 2008 Social Security tax was limited to the first $102,000 (it will rise to $106,800 in 2009).

So if you worked for more than one employer and earned more than $102,000 in 2008, you had excess Social Security tax withheld. Your second employer withheld from dollar one in salary, regardless of what your former employer had taken out.

The maximum Social Security tax that you should have paid in 2008 was $6,324 ($102,000 x 6.2%). If you paid more than that, the excess is a credit against your income tax and should be reflected on line 65 of your Form 1040. (The maximum Social Security tax will rise to $6,621.60 in 2009.)

Deductible points from a refinancing

The Federal Reserve has cut interest rates many times since 2000 -- at least 10 times since September 2007 alone. And as rates fell, you may have refinanced your mortgage, maybe more than once. When you borrow money, your lender may charge you a percentage of the principal amount of your mortgage to increase its yield. These charges are called points. Each point is 1% of the mortgage principal.

If you borrow, for example, $300,000 and are charged two points, that's an additional $6,000 you pay. Points paid on your original mortgage to purchase your home are normally allowable as an interest deduction on Schedule A if you itemize your deductions.

However, points paid on a refinance must be amortized over the life of the loan. So, if you paid $6,000 in points on a refinance, and there are 30 years on the new mortgage, you get to deduct $200 per year, or $16.67 per month.

But there are exceptions to the amortization requirement:

• If you use the dollars from the refinance to improve your principal residence, you can deduct all the points in the year paid.

• If you refinance a second time, any unamortized points on the first refinance may be deductible in full when you refinance again. Say you refinanced your $300,000 mortgage in January 2007 and paid $6,000 in points on a 30-year note from Commerce Bank. For 2007, you deducted $200 in additional interest. In January 2008, Citibank offered you a loan with a 2-percentage-point reduction in the interest rate, and you again paid $6,000 in points. For 2008, you could deduct as interest the $200 from the 2008 loan plus the full $5,800 balance on the original 2007 refinance.

Continued: Mortgage insurance

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