President Bush Signs a 3 Year Extension to the Income Tax Deduction for Mortgage Insurance

On December 20, 2007 President Bush signed into law legislation that will allow homeowners with mortgage insurance (those with less than 20% down payment) to deduct the cost of their mortgage insurance from their taxes. This deduction is for private mortgage insurance (PMI) on a conventional mortgage or Mortgage Insurance Premiums (MIP) on FHA loans.

In late 2006, Congress passed a law that allowed the income tax deduction on 2007 tax returns for loans originated in 2007 only. This new legislation extends that deduction for loans originated from 2007 – 2010 and is part of the Mortgage Forgiveness Debt Relief Act of 2007 approved last month by both the US House of Representatives and the US Senate.

The tax break is for families with an adjusted gross income (AGI) of $100,000 or less. Families with AGI greater than $100,000 up to $109,000 are eligible for a partial deduction.

With the collapse of the sub-prime mortgage market and the reduction of the amount of exotic mortgages that allowed for no money down and no income verification, more people will be using the more secure conventional and FHA mortgages with the protection of mortgage insurance. This deduction will save many low- and moderate-income families money and allow them to better afford their homes.