The New Year is Here!

January 5, 2016 Marc Edelstein Uncategorized 0 Comments

The New Year is Here! 

January is here and 2015 is now a memory. As we celebrate and bid fare well to the New Year, it is never too early to start getting together documents for your 2015 tax returns. If you’ve recently purchased a home, there may be deductions you claim that you haven’t realized. One such deduction is personal mortgage insurance or PMI.

NewyearsWhen purchasing a home, buyers are traditionally required to bring a 20% down payment to the table. This can be a rather large sum of money for many to pull together come time to sign the paperwork, especially for first time home buyers. When this occurs, one option the buyer has is to purchase PMI. While most insurance policies are meant to protect the person who purchases them, PMI is meant to protect the lender in the case that the home buyer defaults on their loan.

While having to purchase a PMI policy increases the amount of money the home owner owes each month, the good news is that this added expense can be claimed as part of your itemized tax return (and who doesn’t love a good deduction!) Developed as part of the Tax Repair and Health Care Act of 2006, PMI policies taken out in 2007 and beyond are eligible to be included in deductions. Congress has extended the tax break through 2016 to help continue to aid the ever recovering housing market.

Claiming this deduction does require a little bit more work on the part of the home owner, especially if you only file a standard tax return. The good news is, itemizing will help you take advantage of larger deductions, such as PMI, as well as smaller deductions such as charitable donations and business expenses.

There are a few important things to be aware of when it comes to make PMI deductions on your taxes. One thing that can affect your deductions would be the reduction or cancellation of your PMI. Once your balance goes below 80% of the purchase price you are eligible to cancel your PMI – which of course removes your eligibility for deductions.

Another thing that can affect the amount of your deduction is your adjusted gross income, or AGI. When a single or couple’s AGI reaches $100,000 their deduction amount begins to be reduced. For every $1,000 over that amount, the deduction amount is reduced by 10%.

When buying a home and considering whether or not to wait until you have a 20% down payment or making the decision to have a lesser down payment and purchasing PMI there are many factors to consider and many different opinions on what course of action is best and both have their advantages. Putting a larger down payment will help decrease your initial monthly payment, while having PMI will give you additional deductions on your tax return. At the end of the day, it’s best to find what fits best for you and your situation.

 

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