Now, Deduct Tax on Mortgage Insurance
– By Pushpa Sathish, Staff Writer
Piggyback loans or mortgage insurance? That will be the question on most homeowners’ minds in 2007 because of a new law introduced by Congress, according to which mortgage insurance will be tax-deductible in the new year. Bankrate estimates an annual savings of $351 for a homeowner with good credit, in the 25 percent tax bracket, and a $180,000 mortgage. Collectively, homeowners across the US stand to save $91 million when they file taxes in 2008, according to the mortgage insurance industry.
Before you rejoice as a homeowner, let me add that the law comes with various strings attached.
- It has to be renewed by Congress next year for it to be applicable in the tax years 2008 and after.
- A full deduction comes only with an adjusted gross income of $100,000 or less.
- The deduction holds good only for those mortgages that are closed in 2007. Loans that are taken out with mortgage insurance in 2006 and before will have to be refinanced in 2007 to qualify for tax deduction on the premiums.
- According to Bob Walters, chief economist at Quick Loans, the new law is beneficial only if you itemize deductions. For a standard deduction, homeowners would have to have a mortgage of at least $130,000 to pay enough interest.
All things considered, homeowners now have the choice between piggyback loans and a mortgage insurance as options to cover the risks on loans taken with their homes as collateral. Piggybacks, which have so far enjoyed the advantage of being tax-deductible, now have a competitor in mortgage insurance, with homeowners being left to judge for themselves as to the better alternative.
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