Wednesday, April 14, 2010

Tip for homeowners & last-minute filers

With federal income tax returns due tomorrow, I'm sure that most homeowners in Decatur have already completed their returns and claimed the interest paid on their mortgage loan as an itemized deduction. I ran across this article from by Kay Bell who did a great job of explaining that tax breaks are also available to homeowners even if they only claim the standard deduction:

Homeownership offers many tax benefits. But recently, laws have been modified so that two home-related costs -- private mortgage insurance and property tax payments -- get special treatment at tax-filing time.

Real estate taxes have always been part of property ownership, as well as a valuable tax break for owners who itemized. Now some homeowners can add at least a part of their property tax payments into their standard deduction amount.

Another common home cost is private mortgage insurance, or PMI. This PMI is a policy that, as a homebuyer, you pay for, but it protects your lender in case you default. Homebuyers who don't put at least 20 percent down when they purchase a residence usually have to buy PMI. And some of those folks now can deduct that cost.

Property tax additions

Many homeowners itemize because they have substantial enough mortgage interest and property tax amounts to exceed their standard deduction amount. But in some cases, such effort isn't worth it.

Standard deduction amounts have increased over the last few years as part of tax-law changes. Those figures then are bumped up each year to reflect inflation. That means that some homeowners, such as longtime residents who've paid down their loan and don't have much in the way of mortgage interest anymore, don't have enough expenses to itemize.

Because it isn't worthwhile to itemize, these folks then lose the tax break offered by their property taxes. Not anymore.

Now homeowners who claim the standard deduction can add at least some of their property tax payments to their tax return's standard amount.

Single homeowners (which includes those who've never married, a married taxpayer filing separately, as well as heads of households) can add up to $500 of property tax payments to their standard deduction amounts. Married taxpayers who file a joint return can add up to $1,000 to their standard deduction.

To include the property tax amounts in your standard deduction, you'll need to file Schedule L.

Making your PMI claim

For most property owners who pay PMI premiums, the insurance is simply part of the price of owning a home. But some homeowners who purchased their primary residences or second homes in 2009 can claim a tax deduction on PMI premiums.

This tax break was tucked into the Tax Relief and Health Care Act of 2006 and originally applied to policies on home loans taken out in 2007. As the housing market continued to sag, Congress extended this tax break to certain premiums paid through 2010.

The tax deduction can be taken for policies issued by private insurers as well as insurance provided by the Federal Housing Administration, the Department of Veterans Affairs and the Rural Housing Administration.

Claiming the deduction is easy. Most homeowners are already familiar with Schedule A, the form on which itemized expenses are claimed. The second section of that form, titled "Interest You Paid," is where mortgage interest and loan points are claimed, specifically on line 13.

Your lender also helps out when it comes to reporting PMI amounts. In box 4 of your Form 1098 (or the substitute year-end loan information statement your lender uses), you'll find the amount of PMI premiums you paid last year as part of your home payments…

To read about additional restrictions and rules about claiming the PMI deduction, read the rest of the article here.

One final note about your federal income tax. We sometimes get people during tax season coming to our office asking for federal tax forms or trying to turn their income tax payment to us. Sorry, but we can only accept local taxes and fees. But the Decatur post office will be open to take all of our federal tax returns.

No comments:

Post a Comment