A few tax benefits were extended as part of the Bipartisan Budget Act of 2018 (the last-minute budget deal struck by Congress after the brief government shutdown in early February). In the classic style of Congress, these benefits were extended retroactively to 2017 tax returns, but they DO NOT apply to 2018 tax returns. In other words, these benefits only apply to the 2017 tax year – the tax returns you’ll be filing in April 2018 for last year’s income. Here’s a summary of two of those tax benefit extensions:
1 – MORTGAGE INSURANCE (MI) DEDUCTION
If your income is $100,000 or less AND you itemize your tax deductions, you may be able to deduct 100% of your monthly FHA and private mortgage insurance premiums paid in 2017. If you qualify for this deduction, you may also be able to deduct your VA guarantee fee or USDA funding fee in the year paid (2017) and your upfront mortgage insurance premium if you spread out the tax deduction over 7 years or the life of the loan. This entire mortgage insurance deduction benefit (monthly + upfront) phases out by 10% for every $1,000 of income above $100,000. For example, if your “modified adjusted gross income” is $102,000, you could only deduct 80% of your MI premiums, and once you exceed $109,000 of income you can’t deduct any of your MI premiums.
2 – MORTGAGE DEBT FORGIVENESS
If your mortgage lender discharges a portion of your loan as part of a short sale, foreclosure or loan modification, you may not have to pay income taxes on the forgiven mortgage debt. In order to qualify for this provision, the mortgage debt needs to be “primary residence acquisition indebtedness.” This means the loan proceeds must have been used to buy, build or improve your primary residence.
PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION, REFERENCE IRS PUBLICATION 936.