3 Major Tax Breaks announced for homeowners, and it’s about time!

1) PMI (Private Mortgage Insurance) is Tax Deductible

If you bought a house with less than 20% down, you’re required to pay PMI to protect the lender, since they went out on a limb to let you borrow the money. Typically, you pay $50-60 a month per every $100,000 of mortgage. If your income is under 100k, you are now able to deduct this amount from your taxable income. This PMI tax break was to expire in 2007 but has been extended until 2010.

2) Short Sale/Foreclosures due no Income Taxes

Lender Forgiveness Mortgage Debt Act: If you sold your home under foreclosure as a Short Sale in 2007 you are not required to pay incomes taxes. Typically, if you were upside down on your mortgage and offered the bank a short sale, you would owe income taxes on the difference. For instance, say your mortgage was $200,000 but you could only sell your house for $150,000. The $50,000 difference is the amount the lender has ‘forgiven’ you of owing. However, prior to this tax break you would still owe the government regular income taxes (depending on your tax bracket) for that amount of money. Now those taxes usually required on Short Sales you do not have to pay.

3) $500,000 Profit from Home Sales Excluded from Capital Gains Taxes

Typically, each person listed on the mortgage qualifies for a $250,000 exemption when they sell a home. This means if you bought the house for $100,000 and sold it for $600,000, that $500,000 (your profit or gain in capital) is exempt from Capital Gains Taxes. However, if your spouse died and you couldn’t afford the mortgage and needed to sell, the surviving spouse would only qualify for their $250,000 exemption. But now, if your spouse has died in the past two years, you can claim their portion and still qualify for the full $500,000 exemption. This exemption has been also extended for another two years.