At the end of 2012, much to do was made about the Fiscal Cliff and the fact that many of the Bush era tax cuts were set to expire. However, after some last minute wrangling from our Congress men and women, many of those tax cuts were extended, to the relief of many taxpayers.
Many homeowners, however, are still feeling the sting from the expiration of the Mortgage Insurance Premium Tax Deduction, which expired a year ago, on January 1, 2012. This was a temporary tax break that began in 2007 and only lasted 4 years. Still, saying good bye to a nice tax deduction is always painful.
What Was the Mortgage Insurance Premium Tax Deduction?
When home buyers buy a home for less than 20% down, they must pay mortgage insurance, commonly known as private mortgage insurance or PMI. They must continue to pay this for years, until they officially own 20% of their home.
For several years, home buyers who took out low down payment loans and had to pay mortgage insurance were able to deduct these mortgage insurance payments if they met certain criteria:
1. The homeowners had to pay the mortgage insurance on home acquisition debt for their first or second residence. (Mortgage acquisition debt is generally for those who took on debt to buy or build their home. Home equity loans don’t qualify.)
2. The homeowner had to itemize on their tax deduction.
How Much Could The Mortgage Tax Deduction Save?
Those who are single or married and filing jointly and had gross incomes of $100,000 or less could write off all of their mortgage insurance premium payments. Depending on the value of the home, the homeowners’ credit score and the loan-to-value ratio, homeowners could save $500 to as much as $1,000, or sometimes even more for homes in high cost of living areas.
Unfortunately, the expiration of this deduction makes home ownership a bit more expensive.
“David Stevens, who served as Federal Housing Administration commissioner and is now chief executive of the Mortgage Bankers Assn., says the loss of deductibility of mortgage insurance hits a segment of consumers — middle-income and first-time buyers — ‘where affordability is especially important’” (TrustYourLender.com).
Other Ways to Save
While homeowners are likely still feeling the sting from the loss of this deduction, it is important to remember that the deduction was only temporary. While it would have been nice if it had been extended, it wasn’t.
However, there are steps the homeowner can take to make the cost of buying a home more affordable such as waiting to buy a home until the requisite 20% down is saved. Of course, if you live in a high cost of living area where modest homes run $750,000 or more, saving 20% down is no easy feat. In this situation, some people rely on loans or gifts from family members to reach 20% down, though that is a personal decision.
The Mortgage Insurance Premium Tax Deduction was a sweet deduction that could save some homeowners as much as $1,000 a year. Due to its recent expiration in January, 2012, home ownership just got a little bit more expensive.
Filing Taxes – Mortgage Insurance Premium Tax Deduction Has Expired is a post originally published on: Everything Finance – Everything Finance – Its all about Money!