Released: December 12, 2006

Private mortgage insurance (PMI) tax deduction

Source: Sandra Block, USA Today

Before Congress turned off the lights and went home for the holidays last weekend, it approved a new tax break for middle-income taxpayers who plan to buy a home in 2007.

The tax break, tucked into the omnibus tax bill, will let home buyers deduct mortgage insurance premiums on their tax returns. Most home buyers who put less than 20% down on a home loan have to pay mortgage insurance, which is designed to protect lenders from default. The cost is typically one-half of 1% of the home mortgage, or $75 a month for a $180,000 loan.

The Mortgage Insurance Companies of America, a trade group for private mortgage insurers, estimates that 20% of home buyers have mortgage insurance, either through private insurers or the federal government.

The trade group estimates that the deduction will save homeowners $300 to $500 a year on taxes.

But as with a lot of tax breaks, there are some important caveats. Unless Congress extends it, the deduction will expire at the end of 2007.

The full deduction is limited to homeowners with adjusted gross income of $100,000 or less.

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