New Tax Breaks Will Aid Some Homeowners

Before filing your federal income-tax return, check to see if you’re eligible for a few new breaks.

Among them is a deduction for private mortgage insurance premiums. Claim it on Schedule A, line 13. The insurance must be "in connection with home-acquisition debt," the IRS says. Premiums paid on a contract issued before the beginning of 2007 don’t count.

Also, there are income limits that prevent upper-income taxpayers from qualifying. The deduction begins to disappear once your adjusted gross income exceeds $100,000 ($50,000 if you’re married and filing separately).

If your adjusted gross income is more than $109,000, or $54,500 if married filing separately, you can’t deduct any mortgage-insurance premiums.

Separately, a much needed new break could help homeowners with mortgage debt that was forgiven, either partly or entirely, by lenders.  It’s easy to overlook this change since it was enacted so recently — and it’s tricky.  Here’s the gist:

Normally, if a lender forgives your debt, that’s considered taxable income to you (although there are several exceptions to this general rule).  Under a law enacted Dec. 20, 2007, known as the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude from gross income debt that was forgiven on their principal residence for "qualified" mortgage debt up to $2 million (or $1 million for a married person filing a separate return).

This exclusion applies to debt forgiven during 2007, 2008 or 2009.  There are many complex details.  For more information, see IRS Form 982 and the instructions at the IRS web site.