Facing Foreclosure? Know Your Deductions and Credits
According to NPR, more than half the nation saw a spike in foreclosures last month. With more and more homeowners facing foreclosures, experts at The Tax Institute at H&R Block offer the following information on credits and deductions, which can provide assistance to individuals prior to and after this unfortunate circumstance.
• Mortgage Debt Forgiveness: homeowners who experienced foreclosure on their primary home may be able to exclude the amount of canceled debt from their taxable income if they meet specific criteria.
• Mortgage Interest Deduction: taxpayers are eligible to deduct qualified mortgage interest on their main home and a second home if they itemize deductions on Schedule A.
o They must be legally liable for repayment of the loan to deduct the loan interest.
o For 2011 filings, taxpayers who could not pay at least 20 percent of their down payment may have been required by their lender to pay for private mortgage insurance (PMI). If the taxpayer qualifies, the PMI may be deductible as mortgage interest.
• Real Estate Taxes: homeowners are able to deduct real estate taxes separately from mortgage interest on Schedule A and from property taxes.
• Non-Business Energy Property Credit: taxpayers may claim energy-efficiency credits for up to 10 percent of the cost of various home energy-efficiency improvements.
• Residential Energy Efficient Property Credit: a nonrefundable personal credit is available for property used to produce energy in a personal residence located in the US .
o The credit is also available for wind energy property and geothermal pumps.
o Real estate taxes must be based on the home’s value and assessed at least annually.