Mortgage Insurance Tax Deduction Extended- A Key Element Helping First Time Home Buyers

Mortgage Insurance Tax Deduction Extended- A Key Element Helping First Time Home Buyers

ElementCongress has extended the federal tax deduction allowing homeowners with low down payment mortgages to deduct the cost of their government or private mortgage insurance premiums for three more years.  Qualified borrowers will be able to take the deduction if their insured mortgage originates between January 1, 2007 and December 31, 2010.

 

The deduction was first approved late in 2006 and initially applied only to the 2007 tax year.  Extension of the tax deduction for mortgage insurance premiums was part of the Mortgage Forgiveness Debt Relief Act of 2007 approved by both the U.S. House of Representatives and the U.S. Senate.

Who is eligible for the new tax benefit?

The tax benefit applies to all types of mortgage insurance options including;

  • Monthly, Annual and Single Premium or Financed MI

  • FHA and VA

  • Purchase and Refinance

What loans are not eligible for the tax benefit?

  • Loans closed before January 1, 2007

  • Households with adjusted income above $110,000.00

  • Customers do not receive a tax benefit for any “cash out” proceeds received as part of a refinance transaction.  The amount of cash received, i.e. Debt consolidation, cash in hand, etc., must be deducted from the loan amount to determine the percentage of tax benefit eligibility.

How is the tax benefit calculated?

  • Mortgage insurance premiums will be 100% deductible for households whose adjusted gross income is $100,000 or less.

  • The tax benefit for households with adjusted gross income >$100,000 but not greater than $100,000 is based on a declining scale.

Adjusted Gross Income                         Percentage Deductible

$100,000 or less                                        100%

$100,000-$101,000                                   90%

$101,001-$102,000                                   80%

$102,001-$103,000                                   70%

$103,001-$104,000                                   60%

$104,001-$105,000                                   50%

$105,001-$106,000                                   40%

$106,001-$107,000                                   30%

$107,001-$108,000                                   20%

$108,001-$109,000                                   10%

$109,001 or more                                       0%

  Borrowers should consult with a professional tax advisor for additional details about MI tax detectability.

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