UPDATED FOR 2021
- Can I deduct my mortgage insurance?
- Can I deduct the points from refinancing my mortgage?
- Can I have a 401(k) AND a Roth IRA?
- What’s the difference between a tax deduction and a tax credit?
Question: Can I deduct my mortgage insurance?
Answer: Yes! Qualified mortgage insurance (sometimes called PMI) is deductible for tax year 2020 as part of the mortgage interest deduction, and it goes on Line 8d of Schedule A.
A few rules:
- You only get this deduction if you itemize.
- The mortgage has to be for a qualified residence, meaning a first or second home that you live in (at least sometimes).
- The loan must have been taken out after 2006 to buy a home.
- The deduction starts to phase out when your adjusted gross income (AGI) hits $100,000 and disappears if your AGI is more than $109,000.
You can find more info in IRS Publication 936.
Question: Can I deduct the points from refinancing my mortgage?
Answer: Yes…but not all at once. The points have to be deducted over the life of the loan. So if you paid $3,000 in points for a 30-year refinance, you can deduct $100 a year until your loan is paid off.
Question: Can I have a 401(k) AND a Roth IRA?
Answer: Yes! As long as your income falls in the IRS limits for Roth IRAs, you can absolutely have both. Those limits change every year, so make sure you have the most current information Here’s a quick link to the Roth IRA income limits for 2020. Remember that you can make 2020 contributions to your Roth IRA until April 15, 2021.
Question: What’s the difference between a tax deduction and a tax credit?
Answer: A tax deduction reduces the amount of income you have to pay tax on. So if your income is $40,000 and you have a $500 deduction, your taxable income would be $39,500. Based on 2020 tax tables, that would reduce your taxes by $60 ($500 x 12%).
A tax credit directly reduces the amount of tax you have to pay, dollar for dollar. So if you owed $800 in taxes and had a $500 tax credit, you’d only have to pay $300.
Bottom line: Credits are better. Find and take as many as you can.