New Deduction for Certain Mortgage Insurance Premiums

For tax year 2007, there is a new deduction for certain mortgage insurance premiums commonly known as PMI (Private Mortgage Insurance).

Mortgage insurance can be provided by the Veterans Administration (VA), Federal Housing Administration (FHA), Renting Housing Association (RHA), and Private Mortgage Insurance (PMI) as defined by Section 2 of the Homeowners Protection Act of 1998.

What is Mortgage Insurance?

Mortgage Insurance is normally required when you buy a house with less than 20% down. Mortgage insurance is a type of guarantee that helps protect lenders against the costs of foreclosure.

New Tax Law

On December 20, 2006, President Bush signed into law the "Tax Relief and Health Care Act of 2006" which created a new deduction for mortgage insurance premiums for ONE year, which was 2007.

On December 20, 2007, President Bush signed into law the "Mortgage Forgiveness Debt Relief Act of 2007", which EXTENDS the mortgage insurance premiums deduction to December 31, 2010.

Section 6050H of the Internal Revenue Code of 1986 (relating to mortgage interest) is amended by adding at the end the following new subsection:

In general - Premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer shall be treated for purposes of this section as interest which is qualified residence interest.

Do you Qualify for the New Mortgage Insurance Premium Deduction?

You MUST meet ALL of the following requirements:

• You must have closed on your mortgage on or after January 1, 2007. If you have a loan with mortgage insurance PRIOR to January 1, 2007, you will NOT be able to deduct the premiums unless you refinance,

• To get the full deduction, your adjusted gross income (AGI) must be LESS THAN $100,000 ($50,000 if married filing separately). The deduction gets phased out gradually between $100,000 and $109,000 ($50,000 and $54,500 if married filing separately). No deduction is available if AGI exceeds $109,000,

• The mortgage insurance premiums must be paid or accrued during the tax year.

If you take the standard deduction instead of itemizing deductions, this new deduction will not affect you since you MUST itemize deductions on Schedule A to claim mortgage insurance premiums.

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