April 10, 2008 - With all of the gloom and doom reported in the news lately about home mortgages, ACCESS wants to take the time to let homeowners know that they may be entitled to some new deductions for their 2007 taxes. With the filing date looming near, it is nice to know that strapped homeowners may owe the government less money than they thought.

Two new deductions are available to some homeowners. The first allows homeowners to write off mortgage insurance premiums required on many loans. The second deduction allows those who sold their home in a "short sale" or lost their home to foreclosure to avoid the often huge tax consequences associated with these procedures.

Unfortunately, the deduction for mortgage insurance doesn't apply to all homeowners who pay mortgage insurance premiums. Due to the infinite wisdom of Congress, only those who purchased or refinanced a home in 2007 can claim this deduction. For those who do qualify, couples filing jointly must earn less than $100,000 to take advantage of the full deduction. The deduction is reduced by 10% for every $1,000 over $100,000 in earnings, until it is no longer available. This deduction is applicable both on a primary residence and on rental property.

The second deduction, for mortgage debt forgiveness, could be a godsend to families that went through a foreclosure in 2007. Under the old law, let's say you owed $250,000 on your home when it was foreclosed upon. The IRS would normally classify that $250,000 owed as taxable income as soon as the foreclosure was final. This could result in a tax bill of nearly $100,000.

The new law, the Mortgage Forgiveness Debt Relief Act of 2007, allows taxpayers whose mortgage was partially or completely forgiven by a lender to avoid any additional taxes. The amount of money that can be forgiven is up to $1 million for individuals and up to $2 million for couples filing jointly.

If you use a software package to prepare your taxes, it is important to note that the new mortgage forgiveness law was passed very late. Many of the more popular tax software programs didn't have this deduction included in their programs. This means that if you had a portion of your mortgage forgiven in 2007, you should speak with a tax professional before filing.

by Jim Malmberg

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