Tax Deduction Insight on Writing Off PMI - What Is New for 2019 and Does This Help Home Buyers?

At the end of 2016, the Trump Administration administrated a comprehensive tax reform package. One of the changes is that private mortgage insurance (PMI) deductions are no longer allowed. In the past, Congress allowed a law that made a tax deduction for the cost of PMI for most houses and vacation homes. Under these laws, premiums for PMI were combined with deductible home mortgage interest on line 13 of Schedule A. The provision expired in 2017 and was renewed. It was not renewed for 2018 and it is questionable if it will be renewed for 2019.

If the PMI deduction is not renewed for 2019, this could make it more difficult for struggling buyers. In a higher end market, buying a home can be harder. If you do not have the money to pay down 20% for a down payment on your home, your lender may insist that you get PMI. The homeowner pays PMI each month, but the benefit actually goes to the lender if there is a default. Without the deduction for PMI, the process of getting a home is more expensive for many homebuyers.

As of the end of 2018, it is unknown if PMI will be deductible or not for 2019. It is important to keep an eye on IRS announcements in the coming weeks if there will be any changes in this area.

Some of the areas that could affect your taxes when buying a home in 2019 should also be noted:

Caps on the Principal for Home Mortgage Interest Deductions

Before the tax reforms, if you did an itemization on your tax deductions, you could qualify mortgage interest for home purchases as high as $1000000 plus another $100,000 for equity debt. The $1,000,000 cap was applied to your primary residence and a single other home.

Today, new mortgages have been capped at $750,000 for the home interest deduction, but for mortgages taken out before December. 15, 2017, the limit is $100,000,000. In 2015, interest paid was the #2 largest itemized deduction on income tax returns and made up almost ¼ of all itemizers.

The immediate loser is here are taxpayers who bought up, hoping to more capitalize on mortgage interest tax deductions. But the cap is also hitting homeowners who own that approach the $750,000 mark. These could be harder to sell in the next few years.

Restrictions on Deductibility for Some Refinances

Under the last law, if you itemized your deductions, you may qualify to deduct certain qualifying mortgage expense interest plus any $100,000 for equity debt. With tax return, the deduction for interest on home equity debt, which means doing refinance loan not related to a home improvement have been cut out.

The big loss here is for people who were borrowing against their homes to pay down debt or pay for other purchase.

There also are limits for state and local tax deductions. If you itemize deductions, you can still deduct state and local taxes and even sales taxes, and your property taxes. But the amount that you can qualify for Schedule A for all state and local taxes cannot be more than $10,000 for married coupled filing together.

References https://www.forbes.com/sites/kellyphillipserb/2018/06/20/buying-a-house-dont-do-it-for-the-tax-breaks/#35fb5bee703b