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What Homeowners Lost at Midnight Dec. 31

NEW YORK (TheStreet) -- Homeowner alert: Several tax breaks that have been around for years expired at midnight Dec. 31. While Congress has often renewed expired breaks retroactively, there's no guarantee that will happen with these.

Of the three key "temporary" breaks created during the financial crisis, the one that probably affects the largest number of homeowners is a deduction for private mortgage insurance premiums.

Private mortgage interest is generally charged to borrowers who put less than 20% down, to protect the lender in case of a default. Usually, it is just part of the monthly mortgage payment, so it can go unnoticed much of the time. But at an annual average of 0.5% of the loan amount, it can add up to many thousands of dollars over the years. Deducting it on the federal income tax return can trim that cost by 15%, 25%, 35% or more, depending on the homeowner's tax bracket.

So if you've been counting on this deduction as you budget, you'll have to adjust. And if you are planning to take out a new mortgage, the lack of this deduction is just one more reason to come up with a 20% down payment to avoid paying PMI in the first place.

The most valuable of the expiring deductions is for loan forgiveness, a discount on the mortgage debt. In recent years, growing numbers of homeowners who ran into trouble got their lenders to agree to remedies such as short sales, in which the lender accepts the home's sale proceeds as enough to pay off the debt, even if the debt was larger.

The difference between what was owed and what was actually paid is considered taxable income. The tax has been waived for a number of years; now it will again be charged. That could easily add thousands to tax bill of a homeowner who engages in a short sale.

Fortunately, rising home values are reducing the ranks of underwater homeowners who owe more than their homes are worth, but there are still millions of them. A short sale is still less damaging to the borrower's credit than a foreclosure, but neither is desirable.

Also expiring are credits for energy-efficiency improvements such as installing better doors and windows, insulation, furnaces, heat pumps, water heaters and central air conditioning. Some other credits remain, for things such as installing solar water heaters, wind turbines and geothermal heat systems.

Fortunately, these three breaks remain in effect for the 2013 return due in April, so you can still claim any that apply to you for the 2013 calendar year. And there's always a chance Congress will renew some or all of them, so stay tuned. For now, though, it's prudent to assume none of these breaks will be available in 2014.

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