By Bill Davis

March 19, 2008



I got an email this morning that I've posted below, verbatim, about the deductibility of private mortgage insurance (PMI). I haven't done much research on this topic, so be warned: Any information below is to be taken as food-for-thought. DO YOUR OWN RESEARCH TO FIND OUT WHETHER THE INFORMATION BELOW CAN BE APPLIED TO YOUR OWN SITUATION.

Hi Bill – I’m David Wescott and I work for one of those monster PR firms that spams you relentlessly with useless stuff, but this time I have something that might actually be relevant. I wanted to make sure you (and your readers) were aware this spring marks the first time that qualified taxpayers will be able to claim a federal income tax deduction for mortgage insurance premiums.

I know most of the time bloggers write about private mortgage insurance it’s usually about how to get rid of it. But privately insured mortgages have helped more than 25 million families become homeowners. I hope you agree that PrivateMI is a much more sound option than some of those risky, exotic loans that were all too available a few years ago. About 2.6 million Americans will be eligible for this deduction.

The tax deduction for mortgage insurance enables households with an adjusted income of $100,000 or less to deduct the full cost of their government or private mortgage insurance premiums on their federal tax returns. Families with incomes between $100,000 and $109,000 are eligible for a reduced deduction. The deduction will provide an average annual savings of $350 for qualified taxpayers. There’s more information on the deduction available at http://privatemi.com/loanoptions/benefits/deductible.cfm and some background at http://www.privatemi.com/loanoptions/index.cfm.

I hope this is helpful – please let me know if you have any questions or would like to talk with an expert about PrivateMI.

Thanks for your interest!

Best,

David

Again, please do your due diligence on this information, including seeking out a professional tax adviser and/or attorney. Here are some additional links to the topic:

Bankrate.com
Mortgage News Daily

According to the Bankrate article, there are Important Caveats:

  • Caveat No. 1: The tax deduction applies only to mortgages that are closed in 2007. If you have a loan with mortgage insurance in 2006, you won't be able to deduct the premiums in the 2007 tax year unless you refinance in 2007.
  • Caveat No. 2: There are income limits. You get the full deduction if your adjusted gross income is $100,000 or less. The amount you can deduct phases out rapidly after that, and no mortgage insurance deduction is available if you make more than $110,000.
  • Caveat No. 3: This is a one-year deal, and Congress would have to renew the deduction to make it apply for the 2008 tax year and beyond. Congress probably will extend the deduction, but you can't know for sure.
  • Caveat No. 4: If you take the standard deduction instead of itemizing deductions, the new law makes no difference to you. “You need to have a mortgage of about $130,000 or so to even pay enough interest to hurdle the standard deduction,” says Bob Walters, chief economist for Quicken Loans. In practice, he says, this means that the deduction is available to households with incomes between $50,000 and $100,000.

Anyway, for a limited — but certainly not insignificant — number of folks, this is some good information. If you have PMI, make less than $110,000, and closed your mortgage deal in 2007, it looks like you can take the deduction.

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