Mortgage Insurance Now Tax Deductible
Congress has approved a one-year tax deduction for mortgage insurance premiums that is designed to provide a boost for the private mortgage industry. It marks the first time the federal government will treat MI premiums like interest payments under the tax code.
The private MI companies have seen their market share shrink during the housing boom as homebuyers opted for “piggyback loans” (such as 80-20, 80-15-5, or 80-10-10 loans) to avoid paying nondeductible MI premiums.
The tax deduction is expected to remove the competitive advantage those piggyback loans enjoyed and make mortgage insurance more attractive to homebuyers who can’t afford a 20% down payment.
Low and moderate income families who purchase a home in 2007 will be able to take the deduction. Taxpayers with incomes of up to $100,000 qualify for a full MI deduction. Taxpayers with incomes of $101,000 to $110,000 qualify for a partial deduction. The deduction is phased out by 10% for each $1,000 of a taxpayer’s adjusted gross income above $100,000.
First-time homebuyers are expected to reap most the benefits of the Mi deduction but it is not limited to first-time homebuyers.
However, the tax deduction is limited to one year. Congress will have to pass an extension next year so new homebuyers and homeowners who took the MI deduction in 2007 can use it in 2008. Congress estimates the MI tax will cost the government $91 million in lost revenue in 2007.
Please be sure to consult your mortgage professional on which product is best for you!
Glen Didas, President and Managing Partner of Rochester Area Mortgage Services Inc., can be reached at (585) 385-4400, ext. 13 or by emailing him at gdidas@ramsinc.com