September 4, 2017 1:44 am

Safe Harbor Deduction for Hard-Hit Homeowners

Homeowners who participate in the Household Finance Agency’s program for distressed homeowners may use a safe harbor for figuring their annual itemized deduction related to their homes. More specifically, distressed homeowners participating in a Treasury-approved program listed at www.treasury.gov/HHF can deduct the lesser of:

  • The sum of all payments on the home mortgage that the homeowner actually makes during a taxable year to the mortgage servicer or the state housing financing agencies (HFAs), or
  • The sum of amounts shown on Form 1098, Mortgage Interest Statement, for mortgage interest received, real property taxes, and mortgage insurance premiums

This safe harbor, which had been scheduled to expire at the end of 2017, has been extended by the IRS to run through 2021 (Notice 2017-40, 2017-32 IRB 190).

State HFAs may, but are not required to, use Form 1098-MA, Mortgage Assistance Payments, to report state HFA mortgage assistance and homeowner payments made to mortgage servicers under a state program.

Caution: Mortgage insurance premiums paid in 2017, even if included in an information return, may not be deducted unless Congress extends the law which expired at the end of 2017.

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Tax Glossary

Legally separated

A husband and wife who are required to live apart from each other by the terms of a decree of separate maintenance. Payments under the decree are deductible by the payor and taxable to the payee as alimony.

More terms