Mortgage Modification And Mortgage Tax Breaks Are Worth Looking Into
In this difficult economy, any type of savings or cost break goes a long way. For homeowners, mortgage modification and tax breaks can provide some much-needed savings. Here is some helpful new info on mortgage modifications and tax breaks in 2020.
Mortgage Deductions In 2020
Thankfully, mortgage interest can still be deducted in 2020. There have been some changes, however, in the way that mortgage deductions work. Currently, homeowners can deduct mortgage interest on a principal of up to $750,000. It is also worth pointing out that the debt must be considered “qualified personal residence debt.” In other words, the mortgage must be backed by either a primary residence or a second/vacation home. The mortgage may also be backed by home equity debt that was used to substantially improve a primary residence or second/vacation home. If home equity debt was not used to make substantial improvements to a home, it is not deductible. Another important caveat is that investment property mortgages are not eligible for the mortgage interest deduction. However, mortgage interest can be used to reduce taxable rental income.
How Do Mortgage Interest Deductions Work?
Before we go any further, we should explain how mortgage interest deductions work. Keep in mind that to claim a mortgage interest deduction, you must itemize your tax return. Essentially, this deduction allows you to reduce your taxable income by the amount you paid in mortgage interest during the applicable tax year. For example, if you make $100,000 in 2020 and paid $10,000 in mortgage interest, your taxable income would be $90,000 (assuming you don’t take any other deductions). Another thing to keep in mind is that the threshold of $750,000 took effect in 2017, as a result of the Tax Cuts and Jobs Act. This means that if you took out a mortgage to buy a million-dollar house before, you can likely deduct all interest paid on that mortgage. If, however, you took out a million-dollar home mortgage after 2017, you will only be able to deduct interest paid on $750,000 of said mortgage (if this sounds confusing, get in touch with an expert attorney at Galler Law).
To claim a mortgage interest deduction, you will use Form 1098. Your mortgage lender should mail this to you in January or February. This form details the amount you paid in mortgage interest – as well as your mortgage points – during the prior year. Your lender will also send this form to the IRS. When claiming a mortgage interest deduction, it also helps to keep good records of all mortgage payments and other mortgage-related transactions.
Miscellaneous Mortgage Interest Deductions In 2020
There are several other mortgage interest deductions – which we have not yet mentioned – that you may be pleasantly surprised to find out are available to you. These “miscellaneous” mortgage interest deductions include:
- Mortgage prepayment penalties
- Late payment charges
- Mortgage insurance premiums
- Mortgage points
Mortgage points are prepaid interest on your loan. You have the option of deducting these points all at once or spreading the deductions out over several years. We should also point out a few caveats to deducting mortgage insurance premiums. For one, you can’t deduct mortgage insurance premiums if the insurance contract was issued before 2006. Also, you cannot take advantage of this deduction if your adjusted gross income exceeded $109,000 for the tax year (or $54,000 if you are married and filing separately). You can deduct mortgage insurance premiums paid to private insurers as well as federal insurers (if you have an FHA, VA, or USDA loan, for example).
State And Local Tax Deductions In 2020
Under the recent Tax Cuts and Jobs Act, there were a few changes to the Stand and Local Taxes (SALT) deduction. This was, in fact, one of the more controversial aspects of the law. Homeowners should take note that taxes on personal property – including real estate – can be taken as a SALT deduction.
What You Cannot Deduct
Now that we have examined what you can deduct when it comes to mortgage interest, let’s take a look at some of the things that you can’t deduct. For many homeowners, this is where much of the confusion lies. Some of the mortgage-related items that you cannot deduct on your tax return include:
- Homeowner’s insurance (not to be confused with mortgage insurance)
- Interest from a reverse mortgage
- Title insurance
- Extra payments toward your mortgage’s principal
- Down payments, deposits, or earnest money that you forfeited
Even though you cannot deduct the items listed above, you can still save considerable money by taking advantage of mortgage interest deductions in 2020.
Mortgage Loan Modifications In 2020
You can save even more money by taking advantage of mortgage loan modifications in 2020. A mortgage modification can reduce your interest rate or payments. This is especially helpful if you are behind on your payments, or even if you could use a break due to financial difficulties. Mortgage modifications can help you stave off foreclosure and bankruptcy. While mortgage modifications are extremely helpful, they are difficult to file: most mortgage modification applications get denied.
To significantly improve the chances of approval, contact an experienced mortgage modification attorney. Galler Law has been helping people successfully apply for loan modifications for over thirty years. The area of mortgage law has changed a lot over the last thirty years, but Galler Law has been. quick to adapt. When it comes to mortgage modification, this firm is aware of all new programs and options for homeowners.
Advantages Of Mortgage Modifications
Mortgage modifications have concrete advantages:
- Missed payments are moved to the end of the loan
- If the real estate is worth less than the balance of the mortgage, said mortgage can be reduced to match the value of the home
- The loan can be lengthened, resulting in lower monthly payments
If these advantages sound like music to your ears, call a mortgage attorney at Galler Law today.