Mortgage Interest vs. 1099-Misc Income?

In essence, you are correct, although the details of how this happens is a bit more complicated than you think.

Your "independent contractor" income is reported on a Schedule C (one for you, one for your wife), along with any "necessary and reasonable" expenses of earning such income. If the net profit exceeds $433 on either Schedule C, then a Schedule SE has to be prepared to calculate the self employment taxes due. The figures from these forms transfer to your 1040, as directed by the form instructions, and add to your AGI.

Mortgage interest (and real estate taxes) are entered on Schedule A, along with your medical expenses (over 7-1/2% of AGI), charitable donations, and miscellaneous deductions over 2% of AGI to determine your total Itemized Deductions. If that figure is greater than your Standard Deduction (which it should be with that large a mortgage interest figure), this is subtracted from your AGI. Then subtract your personal exemptions ($3400 times exemptions and dependents) to arrive at your TAXABLE INCOME figure.

Whether this results in less tax, or even a refund, depends on your actual numbers (including withholding from your day job), which we don't know. You will have to do the calculation yourself.

Assuming you and wife have also in previous years generating 6 to 10 in schedule c earnings; also assuming you haven't itemized before.

So then, your 18 k in mortgage interest is at least 8 k over your standard deduction; maybe more, so that will save you about 2 k IF you're in the 25% tax bracket.

However, when filling out your tax forms, be advised that schedule se is required if either/both of your schedule c's generate income over 400$; not 433$ as mentioned before.

ChEAr$, Harlan Lunsford, EA n LA

Harlan,

Schedule SE is required for net income from self employment of $400.

Net Income from Self Employment is on Schedule SE and is .9235 of net schedule C profit.

Of course i know all that, Art! But IRS instructions call for the form if SE income is over 400 still.

ChEAr$, Harlan

But SE Income is not the net profit shown on Schedule C.

It is the Net SE Income line on Schedule SE, which is the Schdule C Profit x 0.9235.

See the very first bullet item at the top of Schedule SE

Also see

You must file a tax return if you had net earnings from self employment of $400 or more. This is your total self-employment income less the expenses paid in operating your trade or business, multiplied by 92.35%.

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Similar quote on

(a bunch snipped here for brevity.)

Okay, you win this one! (grin

HL