From Sam Marchal, important facts-Stefan
|YEAR END TAX SERIES: CREDITS AND DEDUCTIONS FOR HOMEOWNERS SET TO EXPIRE|
|First in a series of special year-end tax tips for homeowners.The end of the year will put an end to some great tax benefits for homeowners, including:
Some homeowners who install energy-efficient insulation, windows, doors, furnaces, water heaters or roofing materials will be able to take a tax credit equal to of 10 percent of the cost of those improvements.
There’s a $500 overall cap on the tax credit, caps on certain projects (the tax credit for windows is capped at $200, for example) and not all energy-efficiency improvements qualify.
The rules are complicated and how much you can claim depends on whether you’ve taken the tax credit in prior years and which upgrades you install.
Mortgage Insurance Deduction
The mortgage insurance (MI) and debt forgiveness tax deductions will end Dec. 31, 2013 unless Congress votes to renew them.
This isn’t the first time these homeowner tax benefits have been threatened. In 2012 they expired on Dec. 31 and it took Congress until January 2013 to renew them. Homeowners were left in the lurch waiting to hear if those important tax provisions would be renewed.
The MI deduction allows you to deduct the cost of mortgage insurance, but there are restrictions. For example, it phases out after you earn more than $109,000 and it matters when you got your mortgage.
The IRS’ Mortgage Related Expenses app will tell you if your mortgage insurance is deductible.
Mortgage Debt Forgiveness
Mortgage debt forgiveness can happen when you lose your home to foreclosure or you sell it in a short sale. In both cases, the lender generally isn’t repaid the full amount you owed on your mortgage.
The difference between what you owed and what the lender actually got from the foreclosure or short sale is “forgiven debt.” And the IRS says forgiven debt is taxable income. So if you have debt forgiven, you owe tax on that “income.”
During the housing crisis, Congress decided taxing financially troubled homeowners on income they didn’t actually receive wasn’t fair, so it set aside the IRS forgiven income rule until the end of 2013.
For that exemption to continue, Congress has to extend it. Otherwise, starting Jan. 1, 2014, you’ll owe income tax on the amount of debt your lender forgives in a short sale, foreclosure, deed-in-lieu or other foreclosure alternatives that don’t result in your mortgage being completely repaid.