Bush Signs MI Deduction; National Mortgage News
President Bush has signed a tax bill that creates a deduction for mortgage insurance premiums that is designed to help homebuyers in 2007 but could also benefit owners who refinance. The MI deduction becomes effective Jan. 1, and it allows homebuyers with incomes up to $100,000 to take a full deduction for the premiums they pay during 2007. It is understood that homeowners who refinance in 2007 can take an MI deduction, but it has to be based on the original amount paid for the house. "Mortgage insurance has long provided a safe and smart way for families to afford a home," MGIC president Patrick Sinks said. "With this new deduction, it becomes all the more sensible at a time when both interest rates and housing costs are on the rise." The MI deduction is good for only one year, but MGIC and the other MI companies expect Congress to extend it next year. One industry source said consumer disclosures should warn that there is some legislative uncertainty involved.
Caveat No. 1: The tax deduction applies only to mortgages that are closed in 2007. If you have a loan with mortgage insurance in 2006, you won't be able to deduct the premiums in the 2007 tax year unless you refinance in 2007.
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Caveat No. 2: There are income limits. You get the full deduction if your adjusted gross income is $100,000 or less. The amount you can deduct phases out rapidly after that, and no mortgage insurance deduction is available if you make more than $110,000.
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Caveat No. 3: This is a one-year deal, and Congress would have to renew the deduction to make it apply for the 2008 tax year and beyond. Congress probably will extend the deduction, but you can't know for sure.
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Caveat No. 4: If you take the standard deduction instead of itemizing deductions, the new law makes no difference to you. "You need to have a mortgage of about $130,000 or so to even pay enough interest to hurdle the standard deduction," says Bob Walters, chief economist for Quicken Loans. In practice, he says, this means that the deduction is available to households with incomes between $50,000 and $100,000. |
Sam Thompson, PHH Mortgage Advisor.
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