Tax Benefits on the Way Out

Please read!!! With all the news on the government shut down and the congressional agreement to restart the government, some credits and deductions that will expire at years end got loss in the mix. Here is a quick recap of some year end tax tips that will save you some real money!! YEAR END TAX SERIES: CREDITS AND DEDUCTIONS FOR HOMEOWNERS SET TO EXPIRE

First in a series of special year-end tax tips for homeowners. The end of the year will put an end to some great tax benefits for homeowners, including: A tax credit for installing energy efficiency upgrades. The deduction for mortgage insurance (MI) payments. A temporary reprieve to a tax rule that makes homeowners pay taxes on mortgage debt their lender forgives during a foreclosure or short sale. Energy-Efficiency Tax Credit Some homeowners who install energy-efficient insulation, windows, doors, furnaces,water heaters or roofing materials will be able to take a tax credit equal to of 10 percent of the cost of those improvements. There's a $500 overall cap on the tax credit, caps on certain projects (the tax credit for windows is capped at $200, for example) and not all energy-efficiency improvements qualify. The rules are complicated and how much you can claim depends on whether you've taken the tax credit in prior years and which upgrades you install. You can read the fine print at the IRS website or the federal government's ENERGY STAR website. Mortgage Insurance Deduction The mortgage insurance (MI) and debt forgiveness tax deductions will end Dec. 31, 2013 unless Congress votes to renew them. This isn't the first time these homeowner tax benefits have been threatened. In 2012 they expired on Dec. 31 and it took Congress until January 2013 to renew them. Homeowners were left in the lurch waiting to hear if those important tax provisions would be renewed. The MI deduction allows you to deduct the cost of mortgage insurance, but there are restrictions. For example, it phases out after you earn more than $109,000 and it matters when you got your mortgage. The IRS' Mortgage Related Expenses app will tell you if your mortgage insurance is deductible. Mortgage Debt Forgiveness Mortgage debt forgiveness can happen when you lose your home to foreclosure or you sell it in a short sale. In both cases, the lender generally isn't repaid the full amount you owed on your mortgage. The difference between what you owed and what the lender actually got from the foreclosure or short sale is "forgiven debt." And the IRS says forgiven debt is taxable income. So if you have debt forgiven, you owe tax on that "income." During the housing crisis, Congress decided taxing financially troubled homeowners on income they didn't actually receive wasn't fair, so it set aside the IRS forgiven income rule until the end of 2013. For that exemption to continue, Congress has to extend it. Otherwise, starting Jan. 1, 2014, you'll owe income tax on the amount of debt your lender forgives in a short sale, foreclosure, deed-in-lieu or other foreclosure alternatives that don't result in your mortgage being completely repaid. Courtesy Al Clark's Home Again Newsletter

More on the Mortgage Deduction

Topic Summary: In the last edition we alerted you that Congress is laying the foundation for comprehensive tax reform. (article is below) Sure to be part of those conversations is the Mortgage Interest Deduction (MID) that millions of homeowners benefit from. In this ongoing series we aim to keep you up to speed on the talks in Washington. We will give you an opportunity to get your views across to your elected officials and generally will be a valuable source of information as tax reform takes over the activity in Washington.

But I Don't Have A Mortgage. Why Should I Care? 

If certain provisions in any new tax reform are counter-productive to a robust housing market, all homeowners will lose out. If you have a paid off mortgage are you still deducting state and local property taxes? They are talking about these too. For many homeowners, property taxes are their largest tax deduction, one that continues even after a mortgage is paid off. Just remember if less people can afford to buy a home, selling yours will be more difficult.

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What To Believe: If you benefit or not from the MID, you should be aware of some of the myths that are floating around that distort the conversation on the merits of the tax provision. Our friends at Houselogic have added their research on 6 MYTHS ON THE MORTAGE INTERST DEDUCTION

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By The Numbers. State By State Usage Of The MID

Recently the Pew Organization added some of their findings to the conversation on Tax Reform. They wanted to find out if the benefits of the MID were evenly distributed throughout the country. In other words, where do you stand in relation to other states? 

The percentage of tax filers deducting mortgage interest in 2010 ranged from a high of nearly 37 percent in Maryland to a low of 15 percent in West Virginia and North Dakota.   The Pew Organization's very comprehensive report  can be downloaded HERE