2 great homeowner tax breaks revived

Buried within the fiscal cliff deal are 2 treasured homeowner tax perks restored by Congress.

By MSN Money Partner Jan 17, 2013 2:05PM

This post comes from Marilyn Lewis of MSN Money.


Image: US government 1040 tax form © Steven Puetzer/PhotographerHomeowners received two little-noticed gifts from the fiscal cliff deal signed by President Obama on Jan. 1. That congressional agreement, called the American Taxpayer Relief Act of 2012, restores a pair of treasured tax breaks previously lost to homeowners.


One is the federal tax deduction for mortgage insurance premiums. The other is a tax credit that lets homeowners take up to $500 off their federal income tax for making certain improvements that increase the energy efficiency of their homes.


Bloomberg makes the point that restoring these tax perks was a triumph for the extremely powerful housing and mortgage insurance lobbies. These two breaks, together with decisions to preserve tax exemptions for home sale profits and mortgage debt forgiven in foreclosures and short sales, could total $600 billion over the next five years.


Deduct MI premiums again

If you pay mortgage insurance, you know that deducting it is the next best thing after being able to cancel it (when the loan balance drops below 78% of the home's value and you've made at least 60 payments). Congress snatched away the deduction at the end of 2011 but gave it back with the stroke of a pen in the Jan. 1, 2013, deal.


You can use the deduction on your 2012 and 2013 federal taxes. It applies to private mortgage insurance premiums as well as Federal Housing Authority and Veterans Affairs premiums.


Restoring the deduction for those two years will cost taxpayers $1.3 billion, says The Associated Press


Bloomberg says about 3.6 million taxpayers used the deduction in 2009 (the latest data available). "They deducted almost $5.5 billion in premiums, for a total tax benefit of more than $700 million, according to the National Association of Homebuilders in Washington."


To enjoy this restored benefit, you'll have to itemize deductions on your federal income tax, said MSN Money tax expert Jeff Schnepper, reached by email. "That means, assuming you don't take the standard deduction, your maximum benefit is 25% of whatever you pay in mortgage insurance premiums."


The deduction is for taxpayers earning less than $110,000 a year, says Mortgage Insurance Companies of America, a trade group.


FHA rules about to change

Government's and lenders' rules require mortgage insurance for homes bought with a down payment of less than than 20%. MICA, the trade group, says that roughly 29% of home loans have mortgage insurance. Of thgat, 9% is private mortgage insurance, 13% is FHA mortgage insurance and 7% VA coverage.


Heads-up: Buying an FHA-insured home is about to become more costly, by the way. Not only are FHA premiums rising to replenish the insufficient FHA insurance pool but FHA is putting an end to homeowners' ability to cancel their insurance once they have a 78% stake in the home. 


No date has been set for the change, HUD spokesman Lemar Wooley said by email. He expects an announcement by March 31 or sooner. Once the change goes into effect, you'll pay mortgage insurance on an FHA loan for as long as you own the loan. The change does not affect FHA loans made before then, though.

Credit for green improvements

And now for that tax credit on energy-frugal improvements. A credit -- unlike a tax deduction, which lowers your taxable income -- is simply money taken off the amount you owe the IRS.


Residential energy tax credits have been available for several years for improvements and appliances that improve a home's energy efficiency. (The program has a tortured history. See it here at the Alliance to Save Energy.)


The tax credit is typically 10% -- up to a total of $500 -- for purchasing and installing certain products. But a few eligible products have specific credits, $300 for an electric heat pump water heater, for example.


What's eligible

The credit can be used when you purchase a qualified new water heater, furnace, boiler, heat pump, central air conditioner, insulation, windows or roofing for your home. Circulating fans are eligible when they're used in a qualifying furnace. Biomass stoves that use qualified fuel also are eligible.


As you may have noticed, "eligible" is the important word here. The Alliance to Save Energy explains how to find out which appliances are eligible. The Database for State Incentives for Renewables & Efficiency also offers a rundown of the credit.


You claim the credit for the tax year in which the appliance was installed (not purchased). You can use the tax credit only if you haven't claimed it before (in any year). File IRS Form 5695  along with your income tax to claim the credit. Here's how the IRS describes the credit.


Extending the credit for 2012 and 2013 will cost taxpayers $2.4 billion, according to the AP.


More from MSN Money:


Jan 17, 2013 3:14PM
How are you "costing taxpayers $x billion" when the taxpayers are actually the ones saving the money with deductions?

You are actually costing the Federal Government "$x billion," but the question then becomes "is the government entitled to that money in the first place?"

You could try to argue the Federal government is an extension of the people, but we all know that isn't true.

Jan 17, 2013 4:16PM

$600B with no way to pay for it for this one, $500B for his new guns laws with no way to pay for, plus others and no desire to cut goverment costs and then demand to keep raising the debt ceiling so that he can create for BS projects and wastes.


His legacy will suck.

Jan 17, 2013 4:26PM

 people pay into home owners tax. just to fund schools

and corrupt local politicians.. many  people don't even

have kids of their own. yet they are wasting $$$$

on all types of taxes INCLUDING Home owners tax

Jan 17, 2013 3:37PM

So you get a $500 tax break on few small repairs, but you home tax went up, so at the end you are not getting anything really.

Jan 17, 2013 5:12PM
Another JOKE on the taxpayer and Obama giving in to the lobbists.  This is ridiculous.  Most of the people who lost the homes did not have any business buying a home.  Before everyone jumps on me for making this statement I will make an exception to exclude people who could not pay because they lost their jobs or because of poor health and could no longer work.  However, for all of you who purchasede a home with no money down or very little and without a savings account to back you up for an emergency - you will ALWAYS be better off buying.  As for the house flippers - they deserve foreclosures and short sales.  Persoally, I would like to bring back debtors prisons!  I know way too many people who basically lied on their applications and now face bankruptcy.  I have absolutely no sympathy for anyone who lies on a mortgage application and then STEALS money when the loan is approved.  This is theft.  If they told the truth, there would have been no mortgage.  And I just love the GREEDY sob's who purchased with no money down because they were flipping for more money - GREED got  you into the problem and I truly hope you suffer the consequences!
Jan 17, 2013 3:23PM
I would rather get a break for saving my money than spending it.  It's called a 401K or IRA... anyway I suppose if I am going to spend money might as well spend it  on something like this and save that way too.  Even if you don't think it should be offered, if you own a home and are making improvements, you might as well take advantage of it.
Jan 17, 2013 6:45PM

Too bad they didn't RESTORE the PROPERTY TAX DEDUCTION for homeowners who CAN'T ITEMIZE DEDUCTIONS.  If you can no longer itemize, you are SCREWED on property taxes !!!

We are RESPONSIBLE HOME OWNERS who worked hard, saved our $$$ and made extra payments even WHILE sending our kids to college.  We were able to PAY OFF our house 3+ years ago.  But then the tax code changed, this was allowed to expire.  Our house is paid for, but there is NO longer any property tax relief for RESPONSIBLE PEOPLE like us !!??

Meanwhile, people who shouldn't have EVER qualified for mortgage loans and posers who had absolutely NO INTENTION of making payments are given TAX BREAKS !!! ???    

WHAT A COUNTRY ... !!!!!!  



Jan 17, 2013 3:44PM

What they are trying to say is that they will give you little money now, and in few years you will need to pay it back with interest.

$500 Now = $600 tax increase later

Jan 17, 2013 4:56PM
enough with the tax breaks  thats one reason we are in such debt  I can see mortgage intrest but not insurance or improvements    If congress wants to help the debt then they need to cut spending and stupid tax breaks
Jan 17, 2013 4:57PM
Here we go again. Is anyone serious about reducing government expenditures or increasing government revenues or reforming the Tax Code? The Sandy Hook bailout included all sorts of unrelated "pork" and now we are handing out new tax deductions and credits with Obamacare refundable tax credits on the horizon. And that is in addition to the much abused additional child refundable tax credit and other boondoggles. Is this all a joke that will keep us laughing until we are completely bankrupt both financially and moral?
Jan 17, 2013 7:22PM
why do we have to jump thru hoops to get our own money back,,, millions billions, trillions its ours anyway you look at it.
Jan 17, 2013 5:18PM
More examples on why we can't get out of this mess.
Jan 17, 2013 7:04PM
I find it strange that there would be a tax break for mortgage ins.  Considering that when there is a failure in the system the insurance companies don't have the money to insure mortgage's.  Why is this still even required?
Jan 17, 2013 3:35PM
OOO-Kay Does this work like the new homeowners incentive rebate?  I applied for it and got bad double what my refund would of been for the last year I worked before retiring. Great right? Two (2) years later, I'm notified this "incentive" was a  "interest free" LOAN and I would have to pay it back! The worse part is that they included my refund in the payback!!!!!!!!!!!!!! I'm still trying to get this straightened out! Now IF I were a bank or other corp.  .............p.s. during this period my sweet Gov't cheated us SS receipients (NO COLA) for three years-HUH?
Jan 18, 2013 11:39AM

If Congress and Obama were really interested in reducing the debt, eliminate the income tax al together and go to the fair tax.  The economy would boom, the treasury would save social security would be fixed, and the poor would have a chance to become middle class if they are willing to work.  The income tax dictates behavior.  The rich will pay less because of the recent increase.  tax free bonds and off shore accounts will protect them.  Remember this.  If we not only taxes the rich 100% and took every dime they had, it would not fix the deficit problem.  We need a combo of the fair tax and spending reduction to achieve success.  We don't really have to even cut spending,  just stop the increase each year and freeze it.  Liberals call reduction in increased draconian cuts.  How stupid is that?

The reason none of this will happen is because the president and congress loe their power over you.  What business is it of theirs how much money you make and what your financial situation is.  The fair tax eliminates all that.

Jan 19, 2013 6:07PM
I don't want to go to work to pay for someones new air conditioner or their mortagage insurance. I get stuck paying my entire tax bill and the AMT tax so others don't have to pay full taxes because of some loophole in the law. It's time people started being responsible for their own stuff and quit asking me to pay for your stuff.
Jan 17, 2013 5:10PM
Doesn't help me a bit my mortgage is with a credit union so I did bit have to have mortgage insurance and the other does not apply to me because nothing in my house is green.  Would like to have it just can't afford it.
Jan 17, 2013 6:45PM

It is fair that they keep PMI premiums tax deductible.  This is because PMI very much like additional "interest" that compensates the lender for the extra risk on a loan with a low down payment.  If mortgage interest is deductible, then PMI should be.


The tax credit for the energy effeciency improvements is garbage though.  This benefits the home stores and HVAC installers more than the homeowner.  When they have these tax credits, the installers just raise the price of the AC or furnace by the amount of the credit.  If it really makes sense to do these improvements, then the homeower would do them anyway and does not need these incentives.

Jan 17, 2013 5:08PM
I hope AZ doesn't refer to Arizona, but to your misspelling of "****". 
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