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.

Special One-Time Federal Excise Tax Credit in 2006 Rebates Tax Overpayment on Phone Bills

When it comes time to prepare and file your 2006 tax return, make sure you don't overlook the "federal excise tax refund credit." You claim the credit on line 71 of your form 1040. A similar line will be available if you file the short form 1040A. If you have family or friends who no longer file a tax return AND they have their own land phone in their home and have been paying a phone bill for years, make sure they know about this form 1040EZ-T.

What is this all about? Well the federal excise tax has been charged to you on your phone bill for years. It is an old tax that was assessed on your toll calls based on how far the call was being made and how much time you talked on that call. When phone companies began to offer flat fee phone service, challenges to the excise tax ended up in federal courts in several districts of the country. The challenges pointed out that flat fee/rate phone service had nothing to do with the distance and the length of the phone call. Therefore, the excise tax should/could not be assessed.

The IRS has now conceded this argument. Phone companies have been given notice to stop assessing the federal excise tax as of Aug 30, 2006. You will most likely see the tax on your September cutoff statement, but it should NOT be on your October bill.

But the challengers of the old law also demanded restitution. So the IRS has announced that a one time credit will be available when you and I file our 2006 tax return as I explained above. However, the IRS also established limits on how BIG a credit you can get. Here 's how it works.

• If you file your return as a single person with just you as a dependent, you get to claim a $30 credit on line 71 of your 1040.
• If you file with a child or a parent as your dependent, you claim $40. If you file your return as a married couple with no children, you claim $40.
• If you file as married with children, you claim $50 if one child, $60 if two children.

In all cases, the most you get to claim is $60 - UNLESS you have all your phone bills starting AFTER Feb 28, 2003 through July 31, 2006 (do not use any bills starting Aug 1, 2006.), then you can add up the ACTUAL TAX AS IT APPEARS ON YOUR BILLS AND CLAIM THAT FOR A CREDIT.

Now if you have your actual phone bills and come up with an ACTUAL TAX AMOUNT, you cannot use line 71 on your tax return.

You have to complete a special form number 8913 and attach it to your tax return. Individuals using the special from 1040EZ-T will have to attach this form 8913 also.

One final point - this credit is a refundable credit. That means you get this money, no matter how your tax return works out.

Source: IRS.gov