The American Taxpayer Relief Act of 2012 was passed on January 1, 2013.
The ATRA included a benefit for those who have or will choose a Low Down Payment Loan in San Diego with Mortgage Insurance.
Borrower-paid Mortgage Insurance (MI) premiums are now tax-deductible through 2013.
They have also been made retroactively tax deductible for 2012.
Since I am a San Diego Mortgage Broker and not a CPA, you should consult your tax advisors regarding MI tax deductibility for your specific situation, but below are some basic question and answers to consider.
What Types of Low Down Payment Loans Qualify for the MI Tax Deduction?
A loan that was used for “acquisition indebtedness” are eligible. This means, mortgages that were used to buy, build or substantially improve your home, as long as the debt is secured by the same residence.
This includes San Diego purchase loans and refinance loans, up to the original acquisition indebtedness.
A Mortgage that has borrowed against the equity in a home or when obtaining a San Diego Refinance Loan for any reason other than to buy, build or substantially improve a residence is called “equity indebtedness.”
Is the Mortgage Insurance Deductibility Available for All Loan Types?
Yes, there is no differentiation among loan types. Your loan can be a San Diego FHA Loan or a Conventional 30 year fixed loan with mortgage insurance.
Your loan could be a fixed loan or an ARM and still qualify for the tax deduction.
What Types of San Diego Properties are Eligible for the Tax Deductibility?
The tax deduction applies to “qualified residences”. As defined in the Internal Revenue Code, that generally includes the borrower’s primary residence and a non-rental second home.
As with the mortgage interest deduction, borrowers can deduct mortgage insurance premiums paid on both their primary residence and one other qualified residence each year.
Investment property loans are not eligible.
Who Qualifies for this Itemized Deduction in San Diego?
Households in San Diego with adjusted gross incomes of $100,000 or less will be able to deduct 100% of their MI premiums.
The tax deduction is reduced by 10% for each additional $1,000 of adjusted gross income, phasing out after $109,000. See the table below.
Married individuals filing separate returns in San Diego who have adjusted gross incomes of $50,000 or less will be able to deduct 50% of their MI premiums.
The deduction is reduced by 5% for each additional $500 of adjusted gross income, phasing out after $54,500. See the table below
The deduction is not restricted to San Diego first-time home buyers.
| Adjusted Gross Income Limits | |||
| Single OR Married, Filing Jointly |
Allowable MI Premium Deduction |
Married, Filing Separately |
Allowable MI Premium Deduction |
|
$0 – $100,000 |
100% |
$0 – $50,000 |
50% |
|
$100,000.01 – $101,000 |
90% |
$50,000.01 – $50,500 |
45% |
|
$101,000.01 – $102,000 |
80% |
$50,500.01 – $51,000 |
40% |
|
$102,000.01 – $103,000 |
70% |
$51,000.01 – $51,500 |
35% |
|
$103,000.01 – $104,000 |
60% |
$51,500.01 – $52,000 |
30% |
|
$104,000.01 – $105,000 |
50% |
$52,000.01 – $52,500 |
25% |
|
$105,000.01 – $106,000 |
40% |
$52,500.01 – $53,000 |
20% |
|
$106,000.01 – $107,000 |
30% |
$53,000.01 – $53,500 |
15% |
|
$107,000.01 – $108,000 |
20% |
$53,500.01 – $54,000 |
10% |
|
$108,000.01 – $109,000 |
10% |
$54,000.01 – $54,500 |
5% |
Is the Adjusted Gross Income Calculated Before or After Deductions?
Your adjusted gross income (AGI) is calculated before itemized deductions, including the MI deduction.
How Does the MI Tax Deduction Work for San Diego Home Loans?
San Diego Borrowers who itemize deductions are able to reduce their overall taxable income in the same manner as your mortgage interest.
Are Borrower-Paid, Single Premiums, Which are Paid up Front in a Lump Sum, Eligible for the Deduction?
Yes, borrower-paid, single-premiums that are paid on low down payment loan options are eligible for the deduction under the new law.
You should consult with a professional tax advisor to determine the amount of the MI premium eligible for the tax deduction.
Please feel free to give me a call if you would like more information on low down payment options with mortgage insurance or get a free interest rate quote by filling out the form HERE.