Deduction in Jeopardy?
Will Congress reinstate deductions for MI premiums as part of its overhaul of the federal tax code? Depending on your situation as a buyer or owner, it could mean thousands of dollars in tax write-offs. M.I. premiums are charged by lenders when borrowers make less than a 20 percent down payment. During the past year, 43 percent of all home purchases were made with down payments of 5 percent or less, according to analytics firm CoreLogic Inc., often by millennials, first-timers and minority buyers.
Under current law, these premium charges can be deducted on eligible borrowers’ income tax filings, along with home loan interest — including insurance charged by FHA. During 2014, the most recent year for which the Internal Revenue Service has statistics, MI premium deductions were claimed by 4.2 million homeowners. Since the right to take full premium write-offs is restricted by law to borrowers with incomes of $109,000 or lower, the benefit is targeted at non-wealthy families and is off-limits to everybody else. Roughly 40 percent of all taxpayers who filed for the deduction in the latest year had incomes of less than $75,000. But here’s the problem: The current statutory authorization for this benefit to middle income owners expired December 31.
It will not be available for borrowers during 2017 and beyond unless reauthorized or given permanent authorization through congressional action. There’s a possibility this could happen if — as expected — Congress responds to President’s Trump call for a major tax reform bill to be passed as early as possible in the new year. Trump did not specifically address M.I. premium deductions during his campaign, but they clearly support one of his key priorities: greater recognition of the financial needs of blue collar and middle income families.
Source: Mortgage Daily