Tax season is officially over for most of us and 2014 may have some big changes for homeowners. First, here are the current tax deductions allowed for homeowners (information provided by TurboTax):
The following can be eligible for a deduction:
- Your property taxes. Don’t forget to include any taxes you may have reimbursed the seller for. These are taxes the seller had already paid before you took ownership. You won't get a 1098 report listing these taxes. Instead, that amount will be shown on the settlement sheet.
- The mortgage interest on your primary residence, as well as on a second residence. (There are limits, but relatively few taxpayers are affected.)
- The interest on up to $100,000 borrowed on a home equity loan or home equity line of credit, regardless of the reason for the loan.
- Points that you paid when you purchased the house (or those that you convinced the seller to pay for you).
- The premiums paid for Private Mortgage Insurance (PMI), but only for policies issued after 2006.This deduction is scheduled to expire at the end of 2013. (The right to this deduction disappears as your Adjusted Gross Income rises from $100,000 to $109,000 (or $50,000 to $54,500 for those who use married filing separately status.)
- Home improvements required for medical care.
As TurboTax highlights in red, PMI is no longer deductible in 2014 but we will see if Congress acts to extend this again as they did previously in 2012 and 2013. There is also a proposed 2014 Tax Reform Act by Dave Camp who is Chairman of the House Ways and Means Committee. Stated in the executive summary are three bullet points:
- The plan makes no changes whatsoever to the mortgage interest deduction for any current mortgage – if you have a mortgage today, your mortgage interest deduction is unchanged.
- The plan has no impact on future refinancing of existing mortgages.
- Current law caps the amount of mortgage interest that can be deducted at the amount associated with the first $1 million of mortgage debt. Beginning in 2015, for those taking out new mortgages, the plan would gradually and responsibly reduce the existing $1 million dollar cap so that for mortgages taken out in 2018 or later, the cap would be $500,000. This means homeowners will still be able to deduct interest on the first $500,000 of mortgage debt. (For instance, if someone buys a home for $750,000 and takes out a $600,000 mortgage, they would still be able to deduct five-sixths of their interest.) This new cap is estimated to impact less than 5 percent of the most expensive homes on the market today.
There is no mention in this tax reform about extending the PMI deduction. We are hoping that it will be extended to help homebuyers who have less than a 20% down payment as it will make homeownership more feasible and tangible for many Americans.