One win, one loss for homeowners
Tax deal lets homeowners continue to deduct PMI, but some will lose the right to deduct property taxes.
It's no secret that homeowners get special tax treatment under the U.S. tax code.
There are the biggies of being able to deduct mortgage interest and property taxes. In case you missed them, those tax breaks are the latest (numbers 33 and 34) in the running Weekly Tax Tips for 2010 feature at Don’t Mess With Taxes.
In recent years, Congress even enhanced homeownership tax benefits a bit.
PMI deduction wins
Thanks to the Tax Relief and Health Care Act of 2006, some homeowners who pay private mortgage insurance (PMI) have been allowed to deduct a portion of these premiums.
This insurance is the policy you have to buy if you don't make a large enough down payment, typically at least 20 percent of your home purchase price.
It's an annoying add-on. Not only does it bump up your monthly house payment, but the policy protects your lender, not you.
But the tax break eases some of that cost and frustration.
The ability to deduct some PMI amounts -- the exact deduction is limited by the homeowner's income: make more than $110,000 and you can't claim it; make between $100,000 and $110,000 and the deduction is reduced -- first appeared as a new line item on Schedule A for 2007 tax filings. Since then, Congress has kept extending this benefit.
The PMI deduction is set to expire again on Dec. 31, 2010 -- unless Congress acts again.
Well, if the House goes along with the Senate-passed tax cuts deal, PMI payers will be OK for one more year. The provision is extended through Dec. 31, 2011.
Standard property tax deduction loses
Another home-related tax break that was enhanced in recent years looks like it is on its last legs.
A provision in the Housing Assistance Tax Act of 2008 and subsequent extensions has allowed homeowners who take the standard deduction instead of itemizing to claim at least a portion of their property tax payments when they file their returns.
This law says you can add up to $500 in real estate tax payments ($1,000 if you're married and file a joint return) to your standard deduction amount.
You did so, and can still do so for the 2010 tax year, by filing Schedule L.
But this likely is the last tax year the standard property tax write-off will be allowed. The deduction is not part of the tax cuts bill.
It's possible that the property tax standard deduction option will reappear in the next Congress.
But given the difficulty Capitol Hill has had in finally getting this far with a tax bill, plus the added attention that government costs will get in the 112th Congress from newly elected (and newly converted) deficit hawk lawmakers, tax breaks are probably going to be harder to come by for a while.
- Reaction to proposed tax deal mixed (vote in the poll!)
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