 Income tax 2021-2022, interest you paid part number three. Get ready to get refunds to the max, diving into income tax 2021-2022. Most of this information can be found on the Schedule A Instructions Tax Year 2021 on the IRS website, irs.gov, irs.gov, focusing in on the itemized deductions in the income tax formula, keeping that distinct in our mind from the above the line deductions or adjustments to income, the Schedule One deductions. Also noting, the itemized deductions will only be taken if they add up to something greater than the standard deduction. Looking at page one of the Form 1040, we're focused on line 12A standard deduction or itemized deductions. Standard deduction, the basic ones on the left-hand side. If we're going to itemize, we will have then a Schedule A itemized deductions listing the major categories on the left-hand side, the total of them totaling up and being pulled into back here, page one of the Form 1040, line 12A, if greater than the standard deduction. Here's an example of the standard deductions. You want to have a general idea of them in mind so you can determine whether or not someone is likely to be able to itemize or not, whether the return will therefore be more complex or not. Points not reported on the Form 1098. So we're continuing on with the mortgage interest here and noting that the mortgage interest is one of those biggest itemized deductions. So when we're thinking about whether someone is itemizing or not, question often being, do you own a home? If they own a home, they most likely have mortgage interest on the home and property taxes, two big items that could push people over. And now we're getting into a bit of the weeds in terms of how would you be reporting the mortgage interest? Normally the mortgage interest is straightforward because you'll have the Form 1098 and you could basically apply that out and record it fairly easily. But we've got a couple other kind of caveats that we've been talking about like loan limits and so on. And now we have the concept of points that could be involved as well. They could add a little bit more of a wrinkle in terms of the deductibility or how to treat the deductibility of them. Points are shown on your settlement statement. So in the year that the home was purchased or when a refinance took place, you might need to go through the settlement statement, the closing documents to see any points that are gonna be allocated out, determine how to treat those points and then going forward from that point forward, it's usually more of a straightforward data input process to deal with the mortgage interest. Now the points, the reason they're a little bit confusing is because they could be seen as basically a prepayment of the interest. So if they're basically a prepayment of the interest, then you would think you would get the deductibility of it, but you may not be able to take it at that point in time. You might have to allocate it say over the life of the loan or you could have points that are gonna be applied to something else that they're putting under the category of points like lender services or something like that. And in that case, because lender services aren't something that are gonna be deductible, then you can't deduct those items. So the question is what are the points in actuality? Can we categorize them as a prepayment of the interest? That's usually the case. If they're categorized under the points and then the question is, well, how do I take the deduction? Can I deduct it here and now? Or do I have to basically allocate it over the lifetime of the loan, which could be a significant decrease in the value of the points because if you're talking about a 30 year loan, then you're basically going to allocate the deduction over that long timeframe, which could be a fairly small amount per time period. So once again, points are shown on your settlement statement. Points you paid only to borrow money are generally deductible over the life of the loan. See publication 936 to figure the amount you can deduct. So you can look at the public purposes such as the lender services aren't deductible. So obviously if they categorized it under points, but it's not for something like interest or prepaid interest, then we don't get a deductible because we don't get to deduct things like the lender services and so on and so forth. The exception in this case is already the capacity to deduct the interest, which is being used to purchase something on the personal side. Refinancing, generally you must deduct points you paid to refinance a mortgage over the life of the loan. So we've got the same kind of situation here. You've got something that is points. If it's categorized as points, then you get the deduction, but you might have to allocate it then over the life of the loan instead of taking it at that point in time, which could significantly reduce the current amount that you're going to get the benefit of the points for especially if it's a long loan like a 30 year loan. This is true even if the new mortgage is secured by your main home. If you use part of the proceeds to improve your main home, you may be able to deduct the part of the points related to the improvement in the year paid. You can see publication 936 for details there. Mortgage insurance premiums. Enter the qualified mortgage insurance premiums you paid under a mortgage insurance contract issued after December 31st, 2006 in connection with home acquisition debt that was secured by your first or second home. So if you have a home mortgage insurance premiums that were applicable as you made the purchase, then those should also generally be shown in box five of form 1098. And that's gonna show the amount of the premiums for 2021, helping you to do the data input there generally. If you and at least one other person other than your spouses filing jointly were liable for and paid the premiums in connection with the loan and the premiums were reported on the other person's form 1098. So you got a similar situation as we saw with the interest that's reported on someone else's 1098, not something that you would prefer to have because we would like it on our 1098 because that's being reported to the IRS. But you can imagine situations where things get kind of complicated or messed up. If this was the case then report your share of the premiums online AD, the prepaid mortgage insurance premiums later if you paid any premiums allocable to any period after 2021. Qualified mortgage insurance is a mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration or the Rural Housing Service or successor organizations and private mortgage insurance as defined in section two of the Homeowners Protection Act of 1998 as in effect on December 20th, 2006. Mortgage insurance premiums, mortgage insurance provided by the Department of Veterans Affairs and the Rural Housing Service is commonly known as funding fee and guarantee fee respectively. So you might hear these terms, different terms for in essence, the same things. So we're going through it just to kind of recap this and this gets into kind of like the purchasing process where you might need some more guarantee for the lender to make the loan. And so they could go through these basically partially government entities, government entities, the Federal Housing Administration, the Rural Housing Service or you might have the private mortgage insurance that's gonna help to provide that added security helping to be able to get the loan out, helping to reduce the amount of risk on the lender side of things. And now of course the question on the tax side of things is the deductibility of the mortgage insurance. Okay, so mortgage insurance provided by the Department of Veterans Affairs and the Rural Housing Service is commonly known as funding fee and guaranteed feed respectively. So you might hear those terms and you could use them in essence interchangeably. These fees can be deducted fully in 2021 if the mortgage insurance contract was issued in 2021. Contact the mortgage insurance issuer to determine the deductible amount if it isn't included in box five of form 1098. So hopefully this will be on the form 1098 and be fairly straightforward. You can then of course look at the instructions for box five and then you can kind of do your research and dig down into it a little bit more if necessary. Prepare mortgage insurance premiums if you paid qualified mortgage insurance premiums that are allocable to periods after 2021, you must allocate them over the shorter of the state term of the mortgage or the stated term of the mortgage or 84 months beginning with the month the insurance was obtained. So obviously the shorter allocation, the better if it's gonna be a deduction cause you would typically like to take the deduction as soon as possible would be the general kind of rule. So once again, you must allocate them over the shorter of the stated term of the mortgage. So if it's the term of the mortgage that could be like a 30 year term, right? That's a long time to have to allocate it over and you might not need the mortgage insurance of course over that whole time because the point of the mortgage insurance is to reduce the amount of liability to the lender. And as you pay down the loan, then you're gonna have more equity in the home and that will naturally reduce. So oftentimes you can refinance possibly later and so on and remove the mortgage insurance maybe at some point in time because you have more equity in the home. So you would think that it would be more reasonable maybe not to allocate it over that long of a period or the shorter of the 84 months beginning with the month the insurance was obtained. So mortgage insurance premiums, the premiums are treated as paid in the year to which they are allocated. If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. You can see publication 936 for details related to that. The allocation rules explained earlier don't apply to qualified mortgage insurance provided by the Department of Veteran Affairs or the Rural Housing Service or their success for organizations. Limit on the amount you can deduct. So here's the limitation. You can't deduct your mortgage insurance premiums if the amount on form 1040 or 1040 SR line 11, that's the AGI adjusted gross income. So remember whenever we have these kind of phase outs that's our income related phase outs, we don't usually take it from line one or I'm sorry the income line but usually the adjusted gross income after those adjustments. We're talking about an income phase out that's gonna reduce your capacity to possibly deduct the mortgage insurance premiums. So that line, line 11 AGI is more than 109,000, 54,500 if married filing separately. If the amount on form 1040 or 1040 SR line 11, AGI adjusted gross income is more than 100,000, 50,000 if married filing separately, your deduction is limited and you must use the mortgage insurance premiums deduction worksheet to figure your deduction. Now obviously from a data input standpoint, it's gonna be fairly straightforward. I mean, it'll be easier because we can use the software to help us with the phase out and the worksheet to populate the proper amount but you wanna have a general idea possibly if this mortgage insurance premium comes into play and say, yeah, if your income is over a certain level then you might not get the capacity for the mortgage insurance premiums and that could be useful when people are thinking about purchasing the home, you wanna be able to inform them that you might have to deal, you might have to get a mortgage insurance premium to settle the contract, to give some assurance to the lender and it may not be deductible depending on your income. If your income is over a certain threshold then you may lose the deductibility of that. However, you should still get the deductibility of the insurance given all other conditions are met and you're not over the maximum amount for the insurance because that one's pretty high, I believe it was 750 loan amount which would be more than enough for most people unless you're a high income individual in a mostly usually a high cost of living area like California or New York where the housing can be substantially different higher than maybe other areas and so that would be the general rule.