While the Obama administration has come under fire for raising taxes to avoid a “fiscal cliff,” there is a light at the end of the tunnel for taxpayers who are seeking to lower their taxes, and that light is home ownership. Moving expenses, home equity debt, energy credits, home-office deductions, mortgage interest—the list of possible tax deductions a consumer can take for being a homeowner, particularly a first-time homeowner, is a relieving one when tax burdens are especially difficult to bear. That’s why it is particularly important to understand the deductions one can take as a homeowner, even those that are part of the home buying process.
One deduction for homeowners that many are not aware of is a deduction paid for the purchase of mortgage insurance. Since many lenders are now requiring mortgage insurance if the mortgage amount exceeds 80% of the total price of the property, an increasing number of borrowers are paying these premiums at the onset of their mortgage. The key to being able to deduct the amount, however, lies in meeting certain thresholds of adjusted gross income. While the thresholds have been adjusted under the new tax structure, they should be easily met—if not completely, then in part—by many middle-class households.
If households show an adjusted gross income of $100,000 or less, the entire amount of mortgage insurance premiums paid for a mortgage can be deducted. For each additional $1,000 of adjusted gross household income, that household’s mortgage insurance premium deduction will be reduced by 10%.
For households with filers who are married but filing separate, each spouse with an adjusted gross income of $50,000 or less will be able to deduct 50% of the mortgage insurance premium that was paid for a loan for the primary residence. For these filers, the deduction is reduced by 5% for each additional $500 of adjusted gross income.