August 16, 2011
Successful home ownership requires borrowers to become more financially savvy in several ways; one of those ways is finding any possible way to save money as a home owner.
FHA borrowers often invest in energy-efficient upgrades, modern insulation, even solar heaters. Refinancing an FHA home loan to lower the interest rate is another way to save, and for some homeowners tax legislation could help improve the bottom line even more.
Some borrowers are now eligible to deduct some of their FHA mortgage insurance premiums on federal income tax returns. According to the FHA official site, FHA loan applicants who closed their transactions between 2007 and 2010 may be eligible based certain conditions spelled out in IRS rules.
The FHA official site states, “Legislation was recently passed to make FHA mortgage insurance premiums paid on FHA-insured loans tax deductible, subject to conditions. Purchase and refinance transactions closed between 2007 through 2010 may be eligible for the deduction. To determine eligibility for the mortgage insurance tax deduction, borrowers should contact the Internal Revenue Service or consult with their professional tax preparer.”
Part of the rules at IRS.gov include this statement on mortgage insurance payments for 2010 tax returns:
“You can treat amounts you paid during 2010 for qualified mortgage insurance as home mortgage interest. The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006.”
This statement is important because of the IRS rule which says “Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan.”
Borrowers are permitted to deduct such interest (including FHA mortgage insurance premiums as described by IRS rules) when they have filed a Form 1040 and itemized deductions. The mortgage must be “a secured debt on a qualified home in which you have an ownership interest.”
The IRS allows mortgage insurance deductions on FHA mortgage insurance as described here: http://www.irs.gov/publications/p936/ar02.html
Always consult your tax preparer or the IRS before attempting to claim new deductions to get the full explanation of how to file and the possible tax implications of claiming the new deductions.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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