PMI Paid in 2007 to Be Tax Deductible

Homeowners who pay less than 20 percent down must many times pay for Private Mortgage Insurance (PMI), but a law recently passed by Congress makes that cost fully deductible on income taxes starting in 2007. It applies to new loans for households making less than $100,000 per year. The change also applies to mortgage insurance issued in combination with a Federal Housing Administration (FHA) loan.

Private Mortgage Insurance (PMI) is often required of borrowers who don't have down payments of at least 20 percent, and don't take out a second “piggyback” loan. Government insurance is mostly offered through the to borrowers considered too risky for traditional loans programs, usually first-time home buyers. Military veterans also take it out.

As we have been anticipating, the Congress, early last Saturday morning, passed a "tax extender" package that included the deductibility of mortgage insurance on new originations in 2007. The highlights of the bill are:

• Permits federal personal income tax deduction for mortgage insurance premiums.
• Applies to new originations only in 2007 (like many other provisions in the bill, it must be reauthorized for 2008.)
• Only taxpayers earning less than $110,000 per year are eligible for the deduction (we understand that the deduction is phased out for borrowers with incomes between $100,000 and $110,000.)
• Applies to premiums for both private and government (FHA,VA & RHS) insurance programs.

The bill, of course, must be signed by the President before it takes effect. However, there is absolutely no indication that the Administration is contemplating any veto action on this bill.

A broad range of consumer, business, taxpayer, civil rights, civic and labor groups have supported the legislation.