2 Deductions You’re Losing This Year

Published: February 03, 2012
By: Dona DeZube
2Comments

Tax benefits for home owners disappeared at the end of 2011 and no one knows whether Congress will bring them back. How annoying!

Update: Happily, Congress extended both the PMI deduction and lifetime $500 energy tax credit through Dec. 31, 2013.

Congress was so busy bickering at the end of 2011 that it allowed two important tax breaks for home owners to expire. Beginning with the 2012 tax year:

1. You can no longer deduct the cost of private mortgage insurance premiums.

2. You aren’t getting a tax credit for some of your home energy improvements.

You can take advantage of these provisions when you file your 2011 tax return — but beyond that, who knows.

Now that Congress is back in session, it’s likely going to pick up where it left off — arguing about what programs to cut and what taxes to raise. The programs, deductions, and tax credits supporting home ownership belong at the top their to-do list.

Up until the end of last year, you could deduct your private mortgage insurance premium (PMI) when calculating your income taxes. It was a benefit targeted to lower- and middle-income home owners. Once you made $100,000 or more, it started disappearing and anyone who had more than $110,000 of adjusted gross income couldn’t use it.

The home owners who have to get mortgage insurance are buyers with less than a 20% down payment and refinancers with less than 20% equity. That’s more often first-time home buyers or younger home owners and less often move-up buyers who’ve built up equity in their homes. So in taking away the PMI deduction, Congress is raising taxes paid by first-time home buyers and younger home owners leaving them with less money to spend on housing. That’s especially wrong-headed when the housing market is struggling to recover.

The tax credit for energy efficiency upgrades wasn’t enormous — it was capped at $500 or 10% of the cost for some projects; less for others. But it was a nice incentive to add insulation, new windows, or to upgrade your HVAC system with a more efficient unit — exactly the kind of actions that help decrease our dependence on fossil fuels, leading to a cleaner environment and less outflow of U.S. income to foreign countries. Not to mention, hopefully, smaller utility bills.

In 2012, home ownership and energy independence advocates will fight to get those expired tax rules back on the books and to have them apply retroactively. It’s a familiar fight — they had to do the same thing at the end of 2010.

But this year, the battle is more complicated because there’s a presidential election, discord between the major parties, and a general lack of consensus on any issues.

We home owners certainly don’t all agree on who to vote for, but most of us consider the renewal of those policies is a no-brainer. And we really don’t appreciate it when Congress lets those rules expire at the end of one year and then leaves us to wonder the rest of the next year whether they’ll be renewed.

Will you be claiming either of these tax breaks on your 2011 returns?

Dona DeZube

has been writing about real estate for more than two decades. She lives in a suburban Baltimore Midcentury modest home on a 3-acre lot shared with possums, raccoons, foxes, a herd of deer, and her blue-tick hound.

Track Your Progress

(2)

These tax incentives are VERY important to homeowners. Many carefully budget expenses when deciding whether or not to buy a home. Many first timers buy with less than 20% down and rely heavily on the deduction to offset the higher cost of PMI.. It makes good financial sense, and gives a much greater sense of ownership, when a new owner improves the property. These days, energy efficiency is of prime concern. Incentives to energy efficiency not only improve the property and its value, it also adds to the local economy when materials are purchased and workers are hired. It also contributes toward our country's efforts to become energy independent from other countries. I have all these reasons and more to argue that Realtors should stand up for homeowners and demand that these incentives be restored. Home ownership matters!
Posted by Anne on March 16, 2012

Why should anyone want tax breaks to buy a foreclosed undervalued home when all you have to do is agree a lower than valuation sale and a year after closing the deal pay off the note you agreed on 3 months before you made the offer. Not Rockje science but these tax laws are what American Citizens with the brains given to them do everyday in multimillion dollar business deals.
Posted by Nigel on February 15, 2012