There is no doubt homeownership boasts several advantages, especially during tax season. If you put less than 20% down on your home purchase and pay private mortgage insurance (PMI), this recently extended tax break may save you some money.
Several loan options have allowed homebuyers to purchase a home with little to no money down, but the downside of putting less than 20% down on your home purchase is the requirement to pay for private mortgage insurance.
For the last several years, homeowners who purchased their residence in 2007 or later have been enjoying the deduction of private mortgage insurance premiums. That tax deduction was set to expire in 2014, but thanks to last-minute changes by Congress and the president with the Tax Increase Prevention Act, the private mortgage insurance deduction has been retroactively extended for 2015 and will continue for 2016.
Who Qualifies for the PMI Deduction?
Just because you pay mortgage insurance premiums doesn’t mean you get to deduct them. Here’s what qualifies you:
- Your home was purchase in 2007 or later.
- Your mortgage is for your primary residence.
- You do not exceed income limits. The PMI tax deduction begins to phase out once your adjusted gross income exceeds $100,000 ($50,000 for married filing separately) and disappears entirely at an adjusted gross income of $109,000 ($54,500 for married filing separately). Moderate-income homeowners making $100,000 or less can write off all mortgage insurance premiums.
Another Homeowner Tax Benefit
If you have made energy-efficient home improvements over the last year, you could get a tax credit. Qualified improvements include installing new windows, an exterior door, a new roof, air conditioning system, furnace and more. If improvements are eligible, homeowners may receive a credit for 10 percent of their costs up to a maximum credit of $500.
Looking to take advantage of homeowner tax benefits in 2016 by buying your first home? Download our free Mortgage 101 Handbook for everything you need to know about the homebuying and financing process.