The buzz over probable tax rate increases has put taxpayers on both sides of the political divide in a state of concern over how it will affect their income in the coming year. The American Taxpayer Relief Act of 2012 was enacted into law on January 2, 2013 and represents a compromise measure that permanently applies the rates set by the Bush-era tax cuts to a majority of Americans while enforcing a higher tax rate for those with higher income levels. It also limits and caps some Bush-era deductions for taxpayers across the board.
With the new federal tax rates causing a stir among the middle class and higher-income earners alike, and additional caps placed on deductions, it’s good to know that there are still significant tax deductions available, particularly for American homeowners. One such deduction is mortgage insurance premiums and if you’re in the process of purchasing a qualifying property this year, this is one that you don’t want to ignore.
The loans that qualify for this deduction are any loan used for “acquisition indebtedness.” What this means if a consumer took out a loan to buy, build or renovate a residence, the mortgage insurance premiums on that loan are eligible as a deduction. Even if a home is refinanced—that loan is still considered a loan that is “acquisition indebtedness.” However, if a consumer borrowed against the current equity in his or her home, this type of loan is considered “equity indebtedness” and does not qualify.
In addition to it being a loan for “acquisition indebtedness,” the mortgage loan must also be for a residence that is defined by the Internal Revenue Code as being “qualified.” In most cases, this means that the residence must be your primary place of residence and cannot be a second home or investment property.
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