A couple of tax breaks that affect many homeowners expired at the end of 2013, and have not yet been extended for tax year 2014. It is still possible they will be extended retroactive to January 1, 2014, and maybe that is why the expiration hasn't been widely discussed in the news. But if you are a homeowner, you should know that as of right now, the following tax breaks will not be allowed starting in tax year 2014. (As a reminder, the taxes you are currently filing are for tax year 2013, even though they are filed in 2014. The tax breaks discussed here apply for the tax year 2013 return that will be filed in 2014).
Private Mortgage Insurance
Since 2007, homeowners have been allowed a tax deduction for private mortgage insurance (PMI). The tax break had been scheduled to expire multiple times, but in an effort to support the housing market, the deduction had been extended yearly, with the last extension covering premiums paid in 2013. The deduction has not been extended for tax year 2014.
What is PMI? For buyers unable (or unwilling) to put 20% down on a mortgage, the buyer must purchase a private mortgage insurance policy that protects the lender in case of a default on the mortgage. A premium for the PMI will be included in the homebuyer's mortgage payment each month. At the end of the year, the lender will provide the homeowner with a Form 1098 (or similar form) which will show in Box 4 the amount of PMI paid in that calendar year. If the homeowner itemizes, that amount of PMI is generally allowed as an itemized deduction (similar to interest on a home loan). The PMI deduction is phased out if your adjusted gross income exceeds $100,000.
Though an extension for the PMI deduction has been discussed, as far as I am aware legislation has not been introduced to extend the deduction. As you file your 2013 taxes, if you claim the PMI deduction it may be worth noting how much the PMI deduction saves you in taxes in 2013, and keep in mind this deduction (as of right now) will not be available for your 2014 taxes.
Mortgage Debt Forgiveness
Also in 2007, the Mortgage Forgiveness Debt Relief Act was signed into law, granting an exception to the rule that forgiven debt is treated as taxable income. Under the Act, mortgage debt on a primary residence that was forgiven through short sale or foreclosure was not treated as income. Unless the short sale or foreclosure closed on or before December 31, 2013, the amount of debt "forgiven" is treated as taxable income.
A bill has been introduced to extend the tax relief for debt forgiveness for another 2 years. Time will tell whether that passes.
