December 2016 may see the end of a number of tax breaks that homeowners took advantage of in the past.
No one wants to talk tax when holiday festivities are in full swing. After all, this year’s taxes won’t matter until next April. Right? Well, maybe for some people, but if you’re serious about buying or selling that home in 12 South, or Green Hills, you may want to take a moment to step away from the eggnog and tune in to the tax breaks you could take advantage of before the end of the year.
Each year, many tax breaks for homeowners (both buyers and sellers) are set to expire. Congress must pass extensions for certain credits to stay available into the following years. And at this point, it looks as if many breaks for homeowners could be reaching an end.
If you own a home — or are looking to buy a home — you may need to act now. It could be your last chance to claim qualifying deductions and write-offs. Here’s what could go away once 2017 rolls around.
No more mortgage debt forgiveness
Typically, when a mortgage lender writes off any part of, or all of, a forgiven debt, the amount that is forgiven is passed back to the borrower as taxable for federal income tax purposes. The rule applies to all debt, including home mortgages. However, this rule was changed by Congress to help struggling homeowners during the Great Recession through the Mortgage Forgiveness Debt Relief Act. Under the rule, qualifying homeowners who either lost their homes to foreclosure or qualified for some kind of repayment adjustment didn’t have forgiven debt taxed as income. After being renewed several times in the past, the exception is due to expire at the end of 2016.
There is some good news if you’re in the process of discharging mortgage debt: You still qualify for the exception and won’t be taxed on the debt if your written agreement with a lender to discharge the debt was created this year. (This means if your debt is actually discharged in 2017, but you signed an agreement in 2016, you’ll qualify for the exemption.)
Write off mortgage insurance premiums while you can!
In a tough market, lenders are a bit more cautious. Buyers who financed homes in the last few years found that many lenders required private mortgage insurance (PMI) to protect the lender in the event of a default. Being able to write off PMI as a deduction is something that changes frequently. In years past, it wasn’t an option. Then in 2014, Congress passed a bill that allowed some homeowners who qualified and itemized to claim a tax deduction for the cost of paying PMI for their homes. This even extended to their vacation homes.
But you can say goodbye to this deduction once again once we enter January 2017. The deduction expires at the end of 2016.
