Mortgage Insurance – A Limited Deduction

21 Jan Mortgage Insurance – A Limited Deduction

First time homebuyers and other borrowers taking out new home loans in 2008 may get an additional tax deduction. If their lender requires mortgage insurance (a type of insurance often found in subprime home loans that protects the lender from a default and not the borrower from loss) then it may be possible to deduct the premium. Many restrictions apply. Sadly, there are so many restrictions that this small tax benefit will help few of the low income borrowers that need the relief andmight otherwise qualify.

An additionalprovision of the Mortgage Forgiveness Debt Relief Act of 2007 includes the extension of the mortgage insurance premium deduction initially passed by congress nearly two years ago as part of the Tax Relief and Health Care Act of 2006. The tax deduction, originally limited to only new loans taken out in 2007, was extended and now covers loans taken out through 2010.

Both the original law and its extension limit the deduction to taxpayers with an adjusted gross income of less than $100,000 for the full deduction; only a partial deduction is given to taxpayers with an income between $100,000 and $109,000, and nothing over that amount. Most unfortunate is the limitation that allows only taxpayers with new loans, taken out after January 1, 2007, to take the deduction. Anyone who pays for mortgage insurance, in addition to the principal and interest on their loan, and has done sosince before 2007 needs and could have benefited from this deduction.

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I was admitted to practice in 1978. I am certified as a Consumer Bankruptcy Specialist by the American Board of Certification. I regularly speak on tax and bankruptcy issues at state, regional and national conferences. Years of experience in practice before the Internal Revenue Service and Oregon Department of Revenue have given me the background to resolve a large variety of consumer tax issues.
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