New legislation recently passed by Congress has brought back a popular tax break on mortgage insurance premiums.
The American Taxpayer Relief Act of 2012 extends the tax break — which expired at the end of 2011 — allowing borrowers to deduct the amount they pay for mortgage insurance.
The mortgage insurance premium deduction is retroactive to January 1, 2012. This means that eligible borrowers who paid a mortgage insurance premium in 2012 will be able to use the deduction when they file their 2012 returns this year. The deduction applies to all loans*, including FHA, VA, USDA and conventional loans.
Also, the mortgage insurance deduction has been extended until December 31, 2013. This means that eligible borrowers who pay a mortgage insurance premium in 2013 will be able to use the deduction when they file their 2013 returns in 2014.
To benefit from the tax deduction, homeowners must itemize the deduction on their federal tax return. Households with an adjusted gross income (AGI) of less than $100,000 per year can deduct 100% of their annual mortgage insurance premiums. Those households with an AGI over $100,000 per year can benefit from the tax deduction but are subject to a sliding scale of benefits.
The American Taxpayer Relief Act of 2012 also extends a provision that exempts homeowners from being taxed on the forgiven amount of their principal residence through a debt reduction plan, such as a short sale, foreclosure or loan modification.*
If you would like to know more about the new legislation recently passed by Congress and how it may benefit your clients, please contact me today.
* Certain restrictions may apply. Your clients should check with their tax advisor to find out if their loan qualifies.
The above content is for informational purposes only and should not be used as a substitute for consultation with a tax advisor.