As the beginning of tax season approach, an IRS spokesman says homeowners should be aware of two new tax tips.
"First, you can treat amounts you paid during 2007 for qualified mortgage insurance as home mortgage interest.," said Mark Green. "If you paid for private mortgage insurance in 2007 — required when you finance (or refinance) more than 80 percent of a home's value — you may deduct those payments."
The policy must have been issued in 2007, and it must phase out once your adjusted gross income reach $100,000 (or $50,000 for married people filing separately) said Green. “The insurance must be in connection with home acquisition debt, the insurance contract must have been issued after 2006, and you must have paid the premiums before 2008 for coverage in effect during 2007.”
For the definitions of home acquisition debt and qualified home, see Publication 936, Home Mortgage Interest Deduction.
In addition, beginning in tax year 2007 and going through 2009, Taxpayers can exclude up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return. This provision applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure qualifies for this relief.
"This means if you owe more on your mortgage than what your home is worth, and you sell the property for less than the amount owed, in what is known as a "short sale, or foreclosure" the amount of the debt forgiven by the lender will not be taxed by the IRS," Green said.
For more information, visit IRS.gov, and pick up Publication 544, Sales and Other Dispositions of Asset, or call the IRS help line at 800-829-1040.