Mortgage Insurance is Once Again Tax Deductible

There’s a saying that Americans love to quote, “The only thing I have to do is die and pay taxes.”

Well, with tax season coming up, it’s time to focus on the more positive part of that short list.

One area that everyone likes to review is the deductibles, and it’s worth knowing as much as you can before you file your income taxes.

If you haven’t heard about the American Taxpayer Relief Act of 2012, you may want to pay attention.

The act declared that borrower-paid premiums on mortgage insurance are tax deductible through the end of 2013.

Like any deductible, there are a variety of facts you should know before claiming this deduction.
The loans that qualify for this deduction are referred to as “acquisition indebtedness.” In layman’s terms that’s money borrowed to buy, build or substantially improve your residence. The same residence must secure the loan.

Purchase loans and refinance loans are included under this heading and can be as high as the original acquisition indebtedness.

This deductible is the same among all loan types and the money used must be for a qualified residence. The IRS code defines residence and it usually includes the primary, and secondary nonrental home.

Finally, in order to qualify for this deduction, households must have an adjusted gross income of $100,000 or less to deduct 100% of their mortgage insurance premiums. For each additional $1,000 of adjusted gross income above $100,000, the deduction decreases by 10%.

In the case of married individuals filing separate returns, each must have adjusted gross incomes of $50,000 or less to deduct 50% off of their separate returns. For each additional $500 of adjusted gross income over $50,000, the deduction decreases by 5%.

Whenever you take a deduction on your personal income tax, it’s wise to be very careful and thoroughly review the guidelines. In the case that you take a deduction by accident, you might be penalized or audited.

Hiring a licensed tax preparer, or consulting with an experienced and knowledgeable tax attorney can help you avoid penalties and audits, and file a tax return that’s correct and processed quickly.