Top 5 Deductions Las Vegas Debtors Can Take While in Chapter 13
A common question people ask their Las Vegas bankruptcy lawyers is, “Can I deduct any of my Chapter 13 payments?” It might at first appear counterintuitive: You are in bankruptcy, so why should the deductions you took in the past apply to payments you made to the trustee? In truth, though, the payments to the trustee are no different than the payments you would’ve made to your creditors. The trustee is merely acting as your agent, even thought the payments are consolidated into one lump sum and poured into the bankruptcy estate. As a result, there are many deductions that are worth taking even if you are still in bankruptcy. Indeed, Chapter 13 bankruptcy can be seen as an opportunity for debtors to learn about the value of itemizing their tax returns if they do not already do so.
The home mortgage interest deduction. Despite its controversy, many homeowners still don’t know that they can deduct interest payments made to mortgagees. The home mortgage deduction is especially important for borrowers who have defaulted on their mortgages because most of the trustee’s payments to the creditors will be deductible interest. Unfortunately for them, renters do not an equivalent deduction.
State and local taxes. The IRS allows taxpayers to deduct real estate, personal property, and either income or sales taxes from their federal income tax returns. Debtors in Chapter 13 who owe tax debts to state and local authorities can deduct them from their payments to the trustee, particularly because they are priority debts that will definitely receive payment.
Medical and dental expenses. Some payments made for health care are deductible if they were not reimbursed. Given that many debtors file bankruptcy due to medical debt, tracking unreimbursed medical expenses is an excellent way to save money in payments to the government.
Business expenses. Many people also end up in bankruptcy because their businesses failed. If some of your debts are for a business, and you tracked what you spent your business loans on, you may be eligible to take some deductions on the debt payments to the trustee.
Student loan interest. It might not be dischargeable at the end of your repayment plan, and student loan creditors are not priority creditors, but interest on any payments you do make to education loan lenders are deductible for tax purposes.
How to find out how much of your plan payments went to which creditors is a separate issue, but for the most part, if your deductions are greater than what would be available under the standard deduction, it’s worthwhile to itemize your payments to the bankruptcy trustee to save money. In Chapter 13, you certainly need it.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.