Limited Partner Spotlight: New Tax Rules Confuse Owners

The evolution of housing tax rules in recent years has taken some taxpayers by surprise. When your mortgage company reports tax information to you and the IRS using Form 1098, it no longer means that all interest and points shown on those statements are tax deductible. Here’s what you need to know.

  • Mortgage interest deductions have new loan amount limits. For new mortgages starting on or after December 15, 2017, you can deduct interest up to $750,000 of the loan (compared to $1 million for mortgages started before December 15, 2017). If your original mortgage is above the threshold, a calculation will be made to determine the deductible amount of interest. You cannot simply deduct the full amount of interest reported on your Form 1098.
  • Unused proceeds to purchase a home add complexity. Home equity debt proceeds that are not used to build, buy, or substantially improve a qualifying home are not tax deductible. This includes mortgage or home equity proceeds used to pay tuition, debt consolidation, or for other purposes. Mortgage companies that issue these loans will still send you a Form 1098, but it’s up to you to prove how you’ve used the funds in the current year and any previous year.
  • Mortgage points require review of settlement statements. Points are paid as a way to get a lower interest rate. Generally, points are deductible in the year they are paid, but they have more restrictions than mortgage interest. Points paid to refinance an existing mortgage, for example, may need to be deducted over the life of the loan. If you purchased or refinanced a home in 2021, a review of your mortgage settlement statement may be required to ensure proper tax treatment of the cost of your points.
  • Mortgage insurance premiums are always deductible. Congress has extended the deductibility of mortgage insurance premiums through the end of the 2021 tax year. You will need to itemize deductions to take advantage of this extended tax law.

With all the buying and selling of homes over the past year, it’s more important than ever to be aware of the tax implications. For each 1098 form you receive, make a note on the form to explain what the loan is for to ensure an appropriate deduction.

— By Nancy J. Ekrem, CPA
Managing shareholder
Chartered Accountants and Business Consultants
[email protected]

Previous Custer VFW raises nearly $3,000 for renovations with silent auction and stew | News
Next Sotheby's launches first live auction of 104 cryptopunks