Private Mortgage Insurance is Tax Deductible in 2007

I've been watching the information regarding Private Mortgage Insurance (PMI) and the new bill passed to allow for PMI to be tax deductible. And I have found some interesting limitations to the program. In the past, the way around PMI was through PiggyBack or Combo Loans. By breaking the total loan amount into portions of 80% and 20%, in affect the lender would be loaning you the down payment. There were also lenders that used what is called "lender paid PMI", where the lender would pay the insurance for you, and then recoup that expense in the form of a higher interest rate. And the benefit to these programs was that all of the interest associated with these programs could be used as a tax deduction.

Well now, the government is saying that since PMI behaves in a similar manner as interest rates, why not let the borrowers receive the same tax benefits. BUT, there are significant limits on who and how a homeowner can use this deduction.

First, you can only use the deduction for mortgages closed in 2007. If you began a mortgage in 2006, you won't be able to take the deduction in the 2007 tax year unless you refinance.

Two, you only get the full deduction if your adjusted gross income (AGI) is less than $100,000. The amount you can deduct decreases by 10% for every $1,000.00 over %100,000.00 per year. Meaning, if you make $110,000.00 per year, you cannot receive any deduction.

Third, this is only good for 2007. In order to use this deduction in the future, Congress will have to vote to renew for upcoming years.

Lastly, in order to receive this deduction, you have to itemize your schedule of deductions on your taxes. If you take the standard deduction, this has no benefit for you. And in all practicality, you need to owe $130,000.00 or more for it to be worth your while.

So, you can see that it is a very slim window of home buyers that can benefit from this bill. This was the intent of its creators. They were trying to show the most benefit to those who need it most, lower income borrowers with mortgages under $100,000.00