PMI Tax Deduction Extended Until 2010
January 4, 2008 by Mary SupingerOn 12/14/2006, I posted an article on Tax Deductible PMI:
On 3/20/2007, I updated that article to read that the 2007 deduction for private mortgage insurance had not yet been extended.
I am happy to report that legislation has been passed that will extend the tax deduction for private mortgage insurance through 2010.
The tax deduction is available to a personal residence and a non-rental second home.
The homeowner’s loan that include the tax deductible PMI must have originated after January 1st of 2007. It can be for a purchase or refinance, but the loan amount may not exceed the acquisition loan amounts.
In other words, if you bought a house for $100,000 and had a 1st mortgage for $80,000 and a 2nd mortgage for $10,000, you could refinance into a new loan with PMI for $90,000. If, you could somehow get a loan for $95,000, you would be able to deduct the PMI for the loan amount up to $90,000 only.
The legislation also carries with it the caveat that your family may earn no more than $100,000 per year or the mortgage insurance will not be 100% tax deductible. For each $1,000 of annual household income earned in a year, the deduction is reduced by 10%. Once a family’s income is over $109,000, the PMI deduction will not apply.
The household income is determined by the adjusted gross income prior to any itemized deductions. This legislation is aimed at helping first time homebuyers with the purchase of a new home.
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Posted in: Buying & Selling A Home Mortgages & Loans Real Estate Trends
I pay 408 a month PMI and 8% things got a little messed up with the credit when my husband got sick for 3 years...... anyway when does the PMI have to be removed? I am at 81% and I asked indy Mac to removed it they said I hate one late payment in the last year I asked them if I could pay the loan down below the 78% and have it removed they said after MArch 2009 I feel trapped I was 2 days late and have to pay over $4800 a year no wonder I was late the PMI is 1/4 of my bill Please advise me
Hi,
Thank you for writing!
Unfortunately, I have no good news for you. The industry has set a standard that one mortgage late and you are sunk for a specified period of time. They gave you a time frame and I am afraid you will have to wait it out.
Yes, it's a big expense. Good news is that it is tax deductible along with your other mortgage interest and property taxes.
If it weren't for mortgage insurance, you wouldn't have this problem as you likely would be renting a home.
I have the same issue as Anonymous (1/11/08). I closed my loan on 12/28/06, with the first payment being due on 2/1/07.
In mid-January 2007, I received verbal information from my Attorney and Broker that I should be able to deduct the PMI on my 2007 taxes. This was very good news since I am paying $550.00 in PMI each month.
When I received my 1098 from the mortgage carrier last month, it did not show any of the PMI as deductible. I contacted several resources, before I finally contacted the IRS. The IRS agent told me to contact the PMI issuer to find out when the contract went into effect. Although, that advice would make for a good loop-hole if it turns out the actual contract wasn't effective until February 2007. However, I am reluctant to believe that this avenue will lead to a solution for me. Any ideas? Thanks, Shelly
Hi Shelly,
I didn't realize that you had posted, so I apologize for getting back to you so late.
Paying $550 a month in PMI might make your loan a candidate for refinancing. IF you earn $100,000 per year, I believe that it is AGI, then a refi might be a good idea.
Rates are about the same and the cost of the refi would be paid off in about ten months.
Call me if you have questions. Thanks
Mary 619-701-4321
It seems unfair that only homes bought after 1/1/07 qualify.
I bought in 8/06, just 4 months earlier, and so I don't qualify even though I meet all the other criteria. It will cost me hundreds of dollars a year more than someone who purchased just a few months after me.
Homes bought prior to 2007 are eligible for the deduction as long as the amount of the PMI deducted does not go over 100% of the actual sales price.
Uh Kevin, not everyone has the ability to do a 20% down. And piggy backing used to be the best way to not lose your money by using it to build equity. But with PMI being tax deductable, it becomes a much more viable option of a double mortgage for those who can't scround up the 20% to cover thier house.
PMI is there for a reason, and I think its great to keep the deduction rolling, to reduce the hit of wasted money during home ownership. If you had listed some viable opinion/options then I wouldn't have had to post this. Next time don't just say why pay it at all, list some options you think are better.
I personally think that PMI exists for a reason and we don't need to encourage young people to take on further risk with creative financing. It shouldn't be rewarded.
Creative financing caused the bubble, this is a fact. If we, as a society, keep rewarding those who take on too much debt, we will continue to see boom/bust cycles in real estate. Is this fair to those who purchased a home (gasp!) the old fashioned way by (gasp!) saving the money and livng within their means?
Instead, uncle sam caters to our greed? We aren't looking past our own nose to see that this will cause a supply and demand issue raising the price of real estate once again? Few will gain from this approach as teachers and laypeople will be priced out of the markets these programs are intended to serve.
And what about high income areas where 109K is merely middle income? How does this program benefit everyone? I think its short sighted. Perhaps I am simple minded, but this country has totally lost sight of the virtue of saving.
Why deduct it? Why just not pay it at all? It's not as though a deduction makes it of no cost.
Thanks for the information. I'll be sure to let any clients that qualify know.
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