Simple tax deduction could save you thousands

Sunday - 2/13/2011, 4:19pm EST

Max Smith, wtop.com

WASHINGTON - You could be paying the IRS hundreds or even thousands of dollars more than you need to be, all because you're missing a simple deduction.

It's the private mortgage insurance tax deduction, which you can claim if you took out a home loan in 2007 or later. It lets you deduct private mortgage insurance payments, known as PMI, as if they were mortgage interest.

If your loan is from the Department of Veterans Affairs or the Federal Housing Administration, the deductible item is known as a funding fee.

Congress has extended the deduction through 2011, and you can take advantage if you got your loan in 2007 or later and meet income requirements.

If as a family you make less than $100,000, you can deduct the full amount of the insurance. You can take a partial deduction if your family makes $109,000 or less.

Even if you missed the deduction when it became available in 2007, or in any years since, you can claim it this year, and you may still have a chance to go back and get a refund.

"Many people (who) may have purchased a home three years ago and didn't realize that they were able to deduct that, may or may not be able to go back and actually get that deduction now," says Michael Chelst with AmericaHomeKey.

Chelst suggests talking to an accountant to see if it's worth amending your old return to get your money back.

Private lenders will often include the information in box four on your 1098 -- the IRS form that details the interest and certain points that you've paid during the course of the year. For federal loans though, Chelst says you need to be aware that it will show up as "funding fee" rather than "PMI."

Since the funding fees can cost about 3 percent of your loan, claiming the write-off can save you thousands of dollars.

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