Sample Housing Authority
Sample Housing Authority
1111 American Highway
Anytown, FL 23423
Re: Advisory and General Guidance on Allowable IRS Deductions
To Housing Choice Voucher Homeowner Participants:
Participants of the Homeownership option of the Housing Choice Voucher program
need to take into account the U.S Department of Treasury and Internal Revenue
Service (IRS) Mortgage Interest and Real Estate Tax deductions for the upcoming tax
season. This letter is to advise and provide general guidance in how to calculate these
deductions in accordance with the latest IRS opinion, if you are assisted by the Housing
Choice Voucher program. Any specific questions should be directed to the Internal
Revenue Service or a tax professional.
The IRS is authorized to interpret and enforce the Internal Revenue Code of 1986. This
includes opinions that impact the participants of assistance of the homeownership
option of the Housing Choice Voucher program and how much may be deducted for
Mortgage Interest and Real Estate Taxes that have been paid on purchased homes.
The IRS letter dated the 28th of August 2001 advises participants of the homeownership
option of the Housing Choice Voucher program that they will probably not be able to
deduct the full amount of Mortgage Interest and Real Estate Taxes due to the IRS
opinion that the assistance is general welfare and is not to be included in income. The
IRS letter is implicit that families may deduct a portion of Mortgage Interest and Real
Estate Taxes. This is only to act as an advisory letter and has no binding effect on the
IRS.
The calculations below are act as illustrations and any specific questions should be
presented to the IRS or tax professionals:
Example # 1
For example if a homeowner’s monthly expenses (see note below) are $1,200 and the
Housing Assistance Payment (HAP) is $300. This would result in an annual
homeowner’s expense of $14,400 and annual HAP of $3,600 for a Family Share
Homeownership Expense of $10,800. This allows the homeowner to deduct 75% of the
Annual Mortgage Interest and Real Estate Taxes. If the Annual Mortgage Interest was
$6,000 reported by the lender, then the family could only deduct $4,500 if itemizing this
deduction. If the real estate property tax reported by the lender was $2,000, then the
family could only deduct $1,500 if itemizing this deduction.
pg. 1
Sample Housing Authority
Calculations for Interest and real estate taxes if itemizing this deduction
Step # 1
Calculate the Annual Homeownership Expenses
Monthly Homeownership Expense (MHE)
$1,200
X (times) months in a year
12 months
= (equals) Annual Homeownership Expense (AHE)
$14,400
Step # 2
Calculate Housing Assistance Payments (HAP) for the Same Period
January HAP =
$300
February HAP =
$300
March HAP =
$300
April HAP =
$300
May HAP =
$300
June HAP =
$300
July HAP =
$300
August HAP=
$300
September HAP =
$300
October HAP =
$300
November HAP =
$300
December HAP =
$300
Sum Total of Annual HAPs (AHAP) = $3,600
Step # 3
Calculate the Family Share of Homeownership Expense
Annual Homeownership Expenses
$14,440
- (minus) Annual HAPs
($ 3,600)
pg. 2
Sample Housing Authority
= (equals) Family Share Homeownership Expense
$ 10,800
Step #4
Calculate the percent allowable for deduction
Family Share Homeownership Expense
$10,800
÷ (divided by) Annual Homeownership Expense
$14,400
= (equals) the percent allowable for deduction
.75
.75 or 75% will be the percentage of Annual Mortgage Interest and Real Estate Taxes
allowed for deduction.
Step #5
Calculate the allowable itemized deduction for interest
Annual Interest Paid on the Mortgage
$6,000
X (Times) percent allowable for deduction
.75
= (equals) allowable deduction for interest
$4,500
Step #6
Calculate the allowable itemized deduction for property taxes
Annual Property Taxes on the home
$2,000
X (Times) percent allowable for deduction
.75
= (equals) allowable deduction for property Tax
$1,500
pg. 3
Sample Housing Authority
Example #2
Note that an increase or decrease in HAP after recertification due to an increase or
decrease of income will need to be accounted for. Taking the example above with a
monthly homeownership expense of $1,200 and HAP of $300, then the effective
recertification date of July shows an income increase, which decreases the HAP to
$100. This would make an Annual Homeownership Expense of $14,400 and the Annual
HAP of $2,400 which makes the Family Share Homeownership Expense of $12,000.
This would allow for a deduction of 83.3% of the Annual Mortgage Interest and Real
Estate Taxes. If the Annual Mortgage Interest was $6,000 reported by the lender, then
the family could then deduct $4,998 if itemizing this deduction. If the real estate property
tax reported by the lender was $2,000, then the family could only deduct $1,666 if
itemizing this deduction.
Step # 1
Monthly Homeownership Expense (MHE)
$1,200
X (times) Months in a year
12 months
= (equals) Annual Homeownership Expense (AHE)
$14,400
Step # 2
Housing Assistance Payments (HAP) for the Same Period
January HAP =
$300
February HAP =
$300
March HAP =
$300
April HAP =
$300
May HAP =
$300
June HAP =
$300
July HAP =
$100
August HAP=
$100
September HAP = $100
October HAP =
$100
November HAP =
$100
December HAP =
$100
Sum Total of Annual HAPs (AHAP) = $2,400
pg. 4
Sample Housing Authority
Step # 3
Annual Homeownership Expenses
$14,400
- (minus) Annual HAPs
($ 2,400)
= (equals) Family Share Homeownership Expense
$ 12,000
Step #4
Family Share Homeownership Expense
$12,000
÷ (divided by) Annual Homeownership Expense
$14,400
= (equals) the percent allowable for deduction
.833
.833 or 83.3% will be the percentage of Annual Mortgage Interest and Real Estate
Taxes allowed for deduction.
Step #5
Calculate the allowable itemized deduction for interest
Annual Interest Paid on the Mortgage
$6,000
X (Times) percent allowable for deduction
.833
= (equals) allowable deduction for interest
$4,998
Step #6
Calculate the allowable itemized deduction for property taxes
Annual Property Taxes on the home
$2,000
X (Times) percent allowable for deduction
.833
= (equals) allowable deduction for property Tax
$1,666
pg. 5
Sample Housing Authority
Note: Monthly homeownership expenses are not simply the monthly mortgage
payments (PITI) Monthly homeownership expenses include the principal and interest on
initial mortgage debt, any refinancing or such debt and mortgage insurance premium
incurred to finance purchase of the home; real estate taxes and public assessments on
the home; home insurance; PHA allowance for maintenance expenses; PHA allowance
for cost of major repairs and replacements; PHA utility allowance for the home; principal
and interest on mortgage debt incurred to finance costs for major repairs, replacements,
or improvements for the home (which may include debt incurred by the family needed to
make the home accessible for a family member with disabilities if the PHA determines
allowances of such cost is needed as a reasonable accommodation); and land lease
payments (where a family does not own fee title to the real property on which the home
is located in accordance with the requirements of §982.628(b)). See 24 CFR 928.635(c)
These are basic illustrations of Mortgage Interest and Real Estate Tax deduction
calculations. If you should have questions concerning your deductions contact the IRS
or a tax professional.
Sincerely,
Sample Housing Authority
pg. 6
Sample Housing Authority
Homeownership Mortgage Interest and Real Estate Tax Deductibility Worksheet
Calculations for Interest and real estate taxes if itemizing this deduction
Step # 1
Calculate the Annual Homeownership Expenses
Monthly Homeownership Expense (MHE)
$_______
X (times) months in a year
12 months
= (equals) Annual Homeownership Expense (AHE)
$_______
Step # 2
Calculate Housing Assistance Payments (HAP) for the Same Period
January HAP =
$___
February HAP =
$___
March HAP =
$___
April HAP =
$___
May HAP =
$___
June HAP =
$___
July HAP =
$___
August HAP=
$___
September HAP =
$___
October HAP =
$___
November HAP =
$___
December HAP =
$___
Sum Total of Annual HAPs (AHAP) = $______
Step # 3
Calculate the Family Share of Homeownership Expense
Annual Homeownership Expenses
$_______
- (minus) Annual HAPs
(_______)
= (equals) Family Share Homeownership Expense
$ _______
pg. 7
Sample Housing Authority
Step #4
Calculate the percent allowable for deduction
Family Share Homeownership Expense
$_______
÷ (divided by) Annual Homeownership Expense
$_______
= (equals) the percent allowable for deduction
.___
.75 or 75% will be the percentage of Annual Mortgage Interest and Real Estate Taxes
allowed for deduction.
Step #5
Calculate the allowable itemized deduction for interest
Annual Interest Paid on the Mortgage
$______
X (Times) percent allowable for deduction
.____
= (equals) allowable deduction for interest
$______
Step #6
Calculate the allowable itemized deduction for property taxes
Annual Property Taxes on the home
$________
X (Times) percent allowable for deduction
.____
= (equals) allowable deduction for property Tax
$________
*MHE
number is an estimate based on the previous year’s initial certification or
recertification. The actual MHE number must be calculated by you or your tax
professional. Monthly homeownership expenses (MHE) are not simply the monthly
mortgage payments (PITI) Monthly homeownership expenses include the principal and
interest on initial mortgage debt, any refinancing or such debt and mortgage insurance
premium incurred to finance purchase of the home; real estate taxes and public
assessments on the home; home insurance; PHA allowance for maintenance expenses;
PHA allowance for cost of major repairs and replacements; PHA utility allowance for the
pg. 8
Sample Housing Authority
home; principal and interest on mortgage debt incurred to finance costs for major
repairs, replacements, or improvements for the home (which may include debt incurred
by the family needed to make the home accessible for a family member with disabilities
if the PHA determines allowances of such cost is needed as a reasonable
accommodation); and land lease payments (where a family does not own fee title to the
real property on which the home is located in accordance with the requirements of
§982.628(b)). See 24 CFR 928.635(c)
pg. 9