|Another great Tax Tip article courtesy of Al Clark's HomeAction Newsletter that I must pass on. I never want you not to be in the "know".|
Please read the entire article. The last couple of sentences are key!!!!
HOMEOWNER TAX TIPS FOR YOUR BEST RETURN: DEDUCTING MORTGAGE INSURANCE
Deducting Mortgage Insurance
Second in a four-part series of tax tips for homeowners
If you put down less than 20 percent when you bought your home, your lender likely asked you to get mortgage insurance. Those mortgage insurance premiums may be deductible on your federal income taxes if you itemize and you also meet other requirements.
The mortgage insurance deduction is there for you to use on your 2013 taxes, but you may not get it next year. It expired at the end of 2013 and won't be available in 2014 unless Congress renews it.
How does your tax refund stack up? Are you getting more or less than average taxpayer? For early filers, the average federal refund totaled $3,211, an increase of $190 from 2013. Get advice about the tax credits available for this filing season and answers to your other tax questions from the IRS' Interactive Tax Assistant. Once you file, you can use Where's My Refund? to track the progress of your refund.
Mortgage Insurance Deduction Rules
To use the mortgage insurance deduction, you have to clear some hurdles:
Even if your loan meets those qualifications, to take the deduction, you still have to meet income requirements based on your adjusted gross income. Your AGI appears on Form 1040, line 38.
In general, the deduction gets reduced if your adjusted gross income is more than $100,000 ($50,000 married filing separately) and you lose it completely when you adjusted gross income goes above $109,000 ($54,500 married filing separately).
Use the IRS' itemized deductions work sheet (line 13) to see if your adjusted gross income will limit your mortgage insurance deduction.
Deducting Upfront Mortgage Insurance Premiums
If you paid a big mortgage insurance premium at settlement, called an upfront fee, your deduction may work differently than the deduction for monthly payments (but you still have to follow all the rules mentioned above).
"Mortgage insurance provided by the Department of Veterans Affairs and the Rural Housing Service is commonly known as a funding fee and guarantee fee respectively," the IRS says. "These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013."
If you paid in advance for any other mortgage insurance, you have to allocate those fees over the shorter of:
Here's an example the IRS uses to explain the upfront mortgage insurance deduction:
Ryan purchased a home in May of 2012 and financed the home with a 15-year mortgage. Ryan also prepaid all of the $9,240 in private mortgage insurance required at the time of closing in May.Tax laws and tax rules are constantly being updated and interpreted. This article contains general information, so please discuss your individual situation with a trusted tax adviser before making tax decisions.