Thursday, December 30, 2010

Homeowners tax benefits on the line

  • PMI deduction lives on – extended to 2011
  • higher standard deduction for real estate taxes doesn't – 2010 the last year
Several tax benefits were at stake when Congress and President Obama passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 on December 17, 2010. The most publicized were the Bush tax cuts of 2001 and 2003 that were originally scheduled to expire in 2010. Here are two more tax benefits that were set to go away in 2010.

Mortgage Insurance Premiums - extended
Taxpayers who did not make a large down payment on their house (typically 20 percent) are required to purchase an insurance policy for their mortgage. The premiums paid for qualified mortgage insurance is treated as deductible mortgage interest if the loan originated after January 1, 2007. Box 4 of Form 1098 will show the amount and would be reported on Schedule A, line 13. If the taxpayer’s adjusted gross income (AGI) is more than $100,000 ($50,000 if married filing separately) the amount of the deduction is reduced and if their AGI is more than $109,000 ($54,000 if married filing separately) the deduction is eliminated completely.

The deduction as part of the Tax Relief and Health Care Act of 2006 was set to expire on December 31, 2010 and was given a one year extension to December 31, 2011.

Higher Standard Deduction for Real Estate Taxes – no action
Taxpayers have the option of deducting the full amount of their property taxes on line 6 of Schedule A if they itemize their deductions. The real estate taxes must be based on the value of non-business property and are deductible when paid.

Thanks to the Housing Assistance Tax Act of 2008, starting in 2009 taxpayers who are unable to itemize their deductions can increase their standard deduction for state and local real estate taxes paid up to $500 ($1,000 if married filing jointly) on line 7 of Schedule L. This provision is scheduled to expire on December 31, 2010 and it was left unchanged by the recent tax bill.

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