By Johnny Jackson
This week, the first week of February, may be one of the busiest of the 2008 tax season. So, officials with the Internal Revenue Service are fast asking homeowners be mindful of lesser-known laws regarding mortgage debt and mortgage insurance premiums.
Taxpayers with mortgage debt can exclude up to $2 million of debt forgiven on their principal residence, beginning this year through 2009, according to Mark Green of the Internal Revenue Service. For a married person filing a separate return, the limit is $1 million.
The provision, Green says, applies to debt forgiven in 2007, 2008, or 2009. Debt reduced through mortgage restructuring, and mortgage debt forgiven in connection with a foreclosure, qualifies for the mortgage debt 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. "This will give some relief. They won't be hit twice this year [with the short sale and foreclosure]."
Taxpayers also can treat amounts they paid during 2007 for qualified mortgage insurance as home mortgage interest.
With mortgage insurance premiums, taxpayers may deduct the private mortgage insurance payments they made in 2007. The payments would have been required at the financing of more than 80 percent of their home's value.
The insurance policy, according to Green, must have been issued in 2007 and must be in connection with home acquisition debt.
"... it phases out once your adjusted gross income reach $100,000 [or $50,000 for married people filing separately]," Green said.
He adds, the insurance contract must have been issued after 2006, and the premiums must have been paid before 2008 for coverage in effect during 2007. Private mortgage insurance to amounts paid or accrued have been extended to after Dec. 31, 2007 and on or before Dec. 31, 2010.
On the net:
Internal Revenue Service: