The mortgage interest deduction has gained huge popularity over the past few years. There are a series of strict rules and regulations to follow in order to recover your money. But at the same time, this is not the only deduction you might get.
Aside from the actual interest, there are a few different things that are more important, according to your loan. When getting a loan to build a home from scratch, buy one or just significantly improve your current one, there are a lot of things that may influence this process. The down payment is one of the most important ones.
When you do not really have too much money to pay upfront, the down payment is obviously going to be less significant. The less money you pay in the first place, the more restrictions and problems you will end with and the more control the lending institution has over your situation. This is when the mortgage insurance premiums step in. They come as some extra mortgage expenses or costs asked by the lenders in an attempt to lose some of the risks. Giving out a loan is obviously implying a risk.
Although this might come as a problem for you, you are not really in the position to negotiate or ask for special features and conditions due to a low down payment. Fortunately, you can change this problem due to the IRS. The IRS allows the citizens to deduct such expenses. There is one major condition though, the premium issues in or before 2006 are not eligible. Therefore, only the recent loans can actually come up with a positive result.
The time is the major condition in this process. Although the regular mortgage deduction doesn't have some rules and the requirements are different, the premiums are more sophisticated. Getting a loan in 2005 with a premium mortgage will never give you the chance to come up with a deduction, no matter how hard you try. Other than that, a similar rule affects both processes – filling independently when married will only give you half of what you are supposed to get.
When can you opt for a mortgage interest premium deduction? The rules are simple and depend on the local economy, but also on your economy and your financial situation. The annual limits are extremely important, as well as your gross income. It is falls under those limits, you become eligible. But how do you calculate the gross income? You do not need too much math. Simply count all the taxable incoming payments you had over the past year.
If you can follow the requirements and you also get over the limitations, there is nothing to worry about. But at the same time, it depends on whether you claim the premium independently or not. If you are married and you claim it on your own, you will only get half the money. The other half is reserved to your partner.
The timing is not that important in the process, although getting money early is better than getting money later. There are no doubts about it. Normally, you can claim on such deductions in the year they are allocated to. For example, if your premium is due in August, 2013, you can claim it in that month. It doesn't matter when you actually finished paying for it or whether it was in that month or one month later.
There is one very important trick when about to claim. A lot of people tend to pay everything upfront, only to get all the money back faster. But they have no clue that paying for the mortgage insurance in advance asks for a long delay. Assuming that you get a loan extending over three decades and you prepay the insurance to claim it back later, you must allocate not less than 84 months.
In order to actually claim the premium, you must first learn how to itemize the deductions you had before. To do that, you must download Form 1040 from the official IRS website, which should be completed along with Schedule A. The two files are attached together. If you have problems dealing with Schedule A, the deduction is supposed to be entered on the thirteenth line. This number will also be added to other similar deductions two lines below. All in all, the final result is supposed to go on line 29. As for the official IRS form, this number goes on line 40.
Claiming mortgage insurance premiums is not a sophisticated process, but just a very tricky and annoying one, especially since you do not deal with the IRS everyday. The procedures will drive you crazy, as well as this whole bureaucratic process. A lot of people choose to hire professional lawyers specialized in such procedures instead, only to save some time and lose the stress.