As taxes are relevant in everyone’s task list this time of year, this article shared back in January just may be worth a second look.
In its final hours, Congress passed two pieces of legislation that translate into very good news for some homeowners—but only if they take advantage of them! These bills — extending the deduction for private mortgage insurance and exempting debt from mortgage modifications — are only two of several important changes that could save you thousands in federal taxes this year.
The most important opportunities and changes are:
Private Mortgage Insurance (PMI) If you paid premiums on PMI in 2015—including the upfront premium required by FHA—you may be able to deduct every penny as mortgage interest just like the interest that you paid on your mortgage. Congress extended PMI deductibility only on a one-year basis, so it may or may not apply to payments you make in 2016. To qualify, the insurance contract must have been issued after 2006. Check with a tax professional for details.
Mortgage Forgiveness Relief. Millions of homeowners negotiated mortgage modifications with their lenders to save their homes from foreclosure during housing crash. Until 2007, the forgiven debt was taxed as income, adding to the distressed homeowner’s financial burden. But under the Mortgage Forgiveness Debt Relief Act of 2007, the forgiven debt has been rendered tax-free. The law expired at the end of 2012 but has been extended on a year-by-year basis since then.
On December 18, 2015, President Obama signed a bill to extend the Mortgage Forgiveness Debt Relief Act through December 31, 2016. The extension retroactively covers mortgage debt cancelled in 2015 as well as mortgage modifications in 2016. If you received a mortgage modification in 2015, or if you receive one in 2016, you won’t have to declare any of the mortgage principal forgiven by your lender as income.
Mortgage Interest Deduction (MID) This is the biggie for most homeowners, allowing the vast majority to deduct all interest they paid on first mortgages, second mortgages and loans taken out to pay for improving their homes, including second homes. However, some limitations reduce the value of the MID to certain homeowners:
- You may not deduct interest on more than $1,000,000 (or $500,000 if filing separately) of home acquisition debt for your main home and secondary residence.
- If you took out a loan for reasons other than to buy, build, or substantially improve your home, it may qualify as home equity debt. Even if it was secured by your home, you can deduct the interest you paid on the loan only if the principal totaled less than $100,000 in 2015.
Home Improvement Tax Credits. You may also qualify for tax credits if you made certain improvements to your home to make it more energy efficient. For 2015, you can qualify for a tax credit worth 30 percent of the cost of certain alternative energy equipment installed on or in your home. These include solar hot water heaters property up to a maximum $2,000 credit, solar electric equipment property up to a $2,000 credit, wind turbines and fuel cell property up to a $500 credit for each .5 kilowatt of capacity.
If you bought or sold a home in 2015, or if you are planning to take advantage of these or other important tax provisions affecting your real property, ask your loan officer, who knows the details of your mortgage, for a referral to a tax professional.
Please Note: The tax related information contained in this article is a collection of contributions by our copywriters, and is not the opinion of Mortgage Master or loanDepot. We always advise our clients to consult a licensed tax professional for additional information and guidance on such tax deductions or credits mentioned above.
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