Written on January 10, 2013.
To help boost the distressed housing market, Congress created a tax deduction for private mortgage insurance back in 2007. The tax break has since been extended through 2013, for mortgages taken out or refinanced after January 1, 2007.
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What is mortgage insurance?
It’s insurance that some lenders require home buyers to pay if they put little or no money down. Designed to insure the lender against default by the borrower, it’s often known as PMI, for private mortgage insurance.
IMPORTANT: Don’t confuse this with homeowners hazard insurance, which most lenders require borrowers to have in case of damage or fire.
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How does the deduction work?
It allows qualified homeowners to take a tax deduction on the insurance premiums they pay, in addition to other deductions related to owning a home, such as mortgage interest and property taxes. An insurance industry trade group estimates the deduction saves a typical homeowner about $350 in taxes.
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Is this something new?
Relatively new. At first it was limited to mortgage insurance on homes purchased after Dec. 31, 2006 and only for insurance payments made in the year 2007.
A second law extended the deduction (only for homes acquired after Dec. 31, 2006) for another three years, 2008, 2009, and 2010. It has since been extended through 2013.
The deduction covers mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, the Rural Housing Administration as well as private mortgage insurers.
Note: The IRS says that mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. If provided by the Rural Housing Service, it is commonly known as a guarantee fee. The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing.
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Are there restrictions?
Yes. Borrowers can’t claim the deduction if their adjusted gross income or AGI (their total income minus certain adjustments like retirement account contributions) exceeds certain limits.
To qualify for a full deduction, a couple or a single taxpayer must have AGI of $100,000 or less to get a full deduction and no more than $109,00 to get a partial deduction. A married person who files separately must have AGI of $50,000 for the full deduction, or no more than $54,500 for a partial deduction.
I can help you determine whether you qualify, based on information you provide while doing your return.
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Where can I find the payments on forms I receive?
On Form 1098, usually mailed in January by the mortgage company the mortgage insurance issuer to determine the deductible amount if it is not reported in Box 4 of Form 1098.
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*The articles on this blog are for education and entertainment purposes only and should not be taken as financial or legal advice. See legal disclaimer for further information. If you would like more information on how something listed in any of my posts specifically affects you, please feel free to comment below, email me, or call me anytime.