Mortgage Rate News

Tax season is in full swing. If you haven’t started already, it is important to get a move on with your taxes. There are several deductions and credits that people overlook every year. And your home mortgage loan could help you save a little money. There are deductions (items that lower your taxable income) and credits (items that count toward “paying” your taxes) associated with your home mortgage loan, and you should take full advantage of them.

• Mortgage interest paid. This is common among mortgage tax deductions. You can deduct the interest you paid on your home mortgage loan. There are online calculators that can help you get a better idea of your tax deduction for mortgage interest paid.
• Private mortgage insurance. The premiums you pay for private mortgage insurance can be deducted this year. This deduction actually goes with your mortgage interest paid deduction on Schedule A.
• Property tax credit. You can get a credit on your federal taxes for the state property taxes that you might have paid.

Don’t forget that there is also temporary relief for taxes on mortgage debt forgiveness. If your mortgage lender has redone your loan terms, or forgiven a portion of your home mortgage loan, you do not have to pay taxes on it this year (or next year).

You can learn more about other tax deductions and credits by visiting the IRS.com Web site or speaking with a knowledgeable tax preparer, accountant or attorney.

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President Bush is expected to sign the economic stimulus package passed by Congress at the end of last week. The portion of the economic stimulus package that is getting the most interest is that tax rebate for many Americans. However, there are other provisions in the economic stimulus package:

• Mortgage loans can be bought by Fannie Mae and Freddie Mac in amounts that exceed $700,000 in certain high-priced markets.
• Business tax incentives.
• Additional measures for military veterans.
• Help for the elderly.

The Senate version of the economic stimulus package added additional tax incentives for other groups of people, and the House met with the Senate in order to reconcile the differences and get a version passed.

Whether or not this economic stimulus package will do enough is a current subject of debate. While there are changes to mortgage financing in the bill, problems are likely to continue plaguing the mortgage industry, the International Herald Tribune reports:

Many economists believe the government will have to do more to address the mortgage crisis. Defaults are soaring as millions of borrowers with spotty credit histories who got loans find themselves unable to make monthly payments once the mortgages reset to higher interest rates.

And it is important to note that this is a “quick fix” for the economy, doing nothing to address the underlying problems of the economy. Instead, the measure encourages more debt, placing burdens on an already strained national treasury. Plus, the amount given is unlikely to be enough to help mitigage pressure on American household expenses.

Additionally, though polls show that most Americans plan to use the tax rebate to pay down debt (especially credit cards), practical experience shows that it usually gets spent on consumer goods.

While this might help shorten a US recession, it is not the best option in the long term, since we will likely be in a similar place in a few years (remember the tax rebate offered by the Bush Administration and Congress a few years ago?). And it won’t help most people on an individual personal finance basis.

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Tax relief continues for homeowners in various forms for this 2007 tax season. Mortgage debt forgiveness is no longer considered income, and there have been some other points that should be made concerning tax relief. Look below and see if you can benefit from your private mortgage insurance premiums — or even from financial insolvency.

Private mortgage insurance

If you buy a home with less than 20 percent down, most mortgage lenders require you to get private mortgage insurance (PMI). A couple of years ago, new tax rules made it so that PMI premiums could be deducted like mortgage interest paid. However, these provisions were set to expire this year. Instead, the provision has been extended.

Insolvency can help you gain tax relief on a short sale

For homes facing foreclosure and homeowners hoping to avoid it with a short sale, the mortgage debt forgiveness tax rule doesn’t apply. Instead, homeowners in this position can prove that they are insolvent in order to avoid paying income tax. Inman News explains how to figure insolvency:

To figure out whether you’re insolvent (for IRS purposes) Burgess suggests using form 433F, which is the “Collection Information Statement.” (Download IRS forms for free at www.IRS.gov.) One side of the form lists all of the assets and debts. The other side lists monthly income and expenses. You can fill out the form online and then print it, or print first and work on it by hand. …

Add up all of your assets and then all of your debts. If your debts exceed your assets, you are insolvent by that amount. In other words, you’ve calculated your net worth, and come up with a negative number.

Before you file your taxes, realize that there are a number of new tax relief measures for the 2007 tax season. Either visit the IRS Web site for information or consult a tax attorney or accountant.

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