The fiscal cliff deal Congress passed this week lets home owners keep the tax deduction forÂ private mortgage insuranceÂ payments. It also says troubled home owners wonâ€™t owe income tax on amounts forgiven during a mortgage workout or foreclosure.
PMI is what you pay your lender each month if you put down less than 20% on a home, which protects the lender if you default on the home loan.
WithoutÂ mortgage cancellation relief,Â home owners who have a portion of their mortgage forgiven as part of a workout plan,Â short sale, orÂ foreclosureÂ would have to pay income tax on the forgiven amount. Â This will keep the market moving forward!
In addition, theÂ American Taxpayer Relief Act of 2012Â lets home owners continue to keep up to $500,000 ($250,000 for individuals) in home sale profits tax-free. Only home sellers whose income is $450,000 or above (or singles earning $400,000 or more) and who net more $500,000 on the sale of their home would payÂ taxes on the excess capital gains. For the vast majority of home sellers, thereâ€™s no change.
For those earning above the $400,000-$450,000 threshold, the cap gains rate would rise to 20% from 15%.
Congress extended the tax deductions for all mortgage insurance premiums and for state and local property taxes, which, along with theÂ mortgage interest deduction, are important tax considerations for home owners and buyers.