One of the reasons some folks buy a house in North Carolina is because they think their taxes will be lowered. It’s true that for many years, the mortgage interest tax deduction was one of the best things going, but Mortgage Interest Rates have been so low lately, that the write off of Mortgage Interest hasn’t been that great. The BEST write off for some Home Owners has been as direct result of the reduced tax liability thanks to the Tax Relief and Health Care Act of 2006 that made PMI premiums on your taxes –>> deductible.
This popular tax deduction has been extended through the 2013 tax year, and it is available for homeowners that paid PMI premiums during 2013. There are several income limits tied to the deductions, as well as certain property requirements.
There are mumblings in Congress that this PMI Deduction could be going away after this year, so it’s important to understand what opportunities are available to you!
PMI Might Be Deductible On Your 2013 Taxes
Thousands of home owners have used the PMI tax deduction to lower their tax liability, and reduce the money they owe the IRS. In 2010, (according to H&R Block) an estimated $5.6 billion in mortgage insurance premiums (PMI payments) were deducted by Home Owners.
What types of PMI Qualify For the 2013 Tax Deduction?
Is this your first year filing taxes as a Home Owner? Congratulations! Now – How do you know if you paid PMI? The Closing statement that the Attorney gave you is called the HUD-1 Settlement Statement. The PMI Charges will show on the Second page – and they could show in two different ways (read two different lines)
The upfront mortgage insurance premium is likely to be several thousands of dollars, and even if that’s included in your mortgage amount, it could be deductible! You’ll find it on the 2nd page if you have:
- A Veterans Administration or USDA’s Home loan, the upfront fee will be labeled “funding fee” or “guarantee fee.” VA Loans don’t have a “monthly” or “Annual” PMI Fee, however, USDA PMI will ALSO show as a monthly fee. This will be a separate line item, and will also be on your mortgage payment schedule, included in your “escrow-ed” totals.
- An FHA loan, it’ll be listed as “upfront fee.” This is also sometimes referred to as MIP (mortgage insurance premium). FHA also has a monthly PMI fee, and you will see a separate line item on your HUD-1 for the monthly escrow account we established for you (normally 2 months upfront). You will also need to add up the fees paid in your monthly payments for the year.
- Private Mortgage Insurance, if done as an upfront fee is shown on your HUD-1 as a “single premium.” and it’s likely labeled PMI or MIP (mortgage insurance premium). You could also have a monthly PMI fee included in your payment. In many circumstances, the PMI fee on a Conventional loan was “Lender Paid.” You’ll need to check with your Accountant, but we understand the PMI fees paid by Lender or Seller are still deductible.
There’s a NEW Mortgage Program available in NC that gives us the LOWEST PMI Rates available – and it can save folks THOUSANDS of dollars. You do NOT have to be a First Time Home Buyer to qualify for this new program, however – not all lenders in NC offer this new mortgage Program (of course we do!)
So, no matter what TYPE of mortgage loan you have in NC, when you are doing you 2013 Taxes, you might qualify for the PMI Tax Deduction if you meet the following conditions…
2013 Tax year PMI Deduction Conditions:
- The PMI deduction is not limited to first-time home buyers, and it’s not just for those who bought a home in 2013.
- PMI must be attached to a loan used to buy, build, or significantly improve a home, and the loan must have a Note and Deed of Trust tied to that home.
- Deductions are only allowed for “qualified residences:” According to the IRS, this means the home must be Owner Occupied (primary residence) and / OR a non-rental second homes. This means North Carolina Home Owners may deduct PMI for their primary house plus one additional “qualified” second home.
- Homeowners with an adjusted gross income of up to $100,000 can fully deduct PMI premiums from their taxes.
- Homeowners earning adjusted gross incomes from $100,000.01 to $109,000.00 receive a tiered deduction. These homeowners lose 10% of the deduction for every $1,000.00 in adjusted gross income they report above $100,000.00. For example, homeowners with an adjusted gross income of $102,000.00 would be allowed to deduct only 80% of their PMI premiums.
- A homeowner with an adjusted gross income of up to $50,000.00 can deduct 50% of his or her PMI premiums.
- A homeowner earning an adjusted gross income from $50,000.01 to $54,500 will receive a tiered deduction. A homeowner loses 5% of the deduction for every $500.00 in adjusted gross income he or she earns above $50,000.00. For example, a homeowner with an adjusted gross income of $50,750.00 would be allowed to deduct only 40% of his or her PMI premiums.
You can find more details on the PMI Deduct-ability, based upon the WAY you file (Single, Married, Separately, etc) at this site. These guys are one of the largest PMI Companies in the Country – but they are not Accountants, so if you still have questions, we recommend you speak with an accountant: http://www.mgic.com/ordering-mi/tax-deductible.html
Congress Allowed The PMI Deduction To Expire 12/31/2013
We all know our Congress is looking for ways to make up the Deficit in the US Budget. Dozens of tax benefits that impact individuals, businesses, charities, community assistance programs, and financing for disaster relief efforts expired on December 31st, 2013. These specific tax deductions and tax benefits are sometimes referred to as “tax extenders” because they have a set expiration date but are often renewed by Congress on an annual basis.
The PMI Tax Deduction, along with two other home owner tax benefits, is included in a group of “tax extenders” that expired last December.
Exclusion of Discharge of Principal Residence Indebtedness
Unfortunately, those who are facing Short Sales in 2014 could face higher taxes. The IRS typically considers “forgiven debts” as income. That means that if you have a short sale, and the bank who holds the mortgage “forgives” the additional balance / essentially meaning, the bank is willing to ACCEPT a short sale and take a loss on the mortgage loan. In 2013 you did NOT have to take this “balance” as income. However, the way the laws are written at this moment, you would not have that advantage in 2014… which is a shame. “Without this deduction, homeowners that work with a bank to “short sale” their home could owe taxes for the amount of the debt forgiven by the bank.”
Credit for Energy Efficient Items For Your Home
This tax benefit allows homeowners to receive a tax credit of up to $500.00 for certain energy efficiency improvements they make to their properties. This credit is set up to give an incentive to homeowners in North Carolina that make energy-efficient improvements to their properties. For the past few years, if you added Energy Efficient Windows for instance, with a 203K loan (maybe) you could write off part of that investment. Congress let that deduction expire at the end of 2013.
Home Ownership Deductions and Congress
All of the above-described tax deductions and credits have been extended by Congress in years past… but Congress is faced with some tough choices in creating a balanced budget. The Tax Code, in the budget for FY2014 that was proposed by President Obama includes measures to make some of the “Extenders” (like the ones protecting folks facing Short Sales) permanent.
It’s also important to note that 2014 is a mid-term election year, so extending these popular tax deductions and credits could be more important for members of Congress seeking re-election. Others, of course, will be looking at these provisions in the Tax Code to lower the US Budget Deficit. If you are interested in this topic, you should subscribe to the right, and get our updates!
We are not accountants. If you would like a referral to someone in NC who understand our unique laws, how to approach the PMI Tax Deduction for 2013 and how to report your Mortgage Tax Credit, let us know. We will very happy to refer you! Have more questions about PMI Tax Deductions Can You Still Write Off PMI? / leave us a comment below, or call us at 919 649 5058 Steve and Eleanor Thorne NC Mortgage Experts. You can also connect with us on Twitter or G+