MORTGAGE INSURANCE PREMIUMS NOW DEDUCTIBLE

Before adjourning for the year, Congress passed a $45 billion tax bill that includes a deduction for mortgage insurance (MI) premiums for the benefit of low- and moderate-income homebuyers in 2007. The MI deduction is limited to homebuyers with incomes of less than $110,000. First-time homebuyers are expected to benefit the most from the deduction, but it is not limited to first-time buyers.

Homebuyers who cannot afford a 20% down payment on conventional conforming loans as well as homebuyers using low down-payment financing guaranteed by the Federal Housing Administration and the Department of Veterans Affairs are required to purchase mortgage insurance (sometimes called "private mortgage insurance" or "PMI") and pay a monthly premium in addition to their principle and interest payment.

The deductibility of this payment may act as further inducement for low- and moderate-income families to purchase their own homes. The projected annual savings is estimated at $200-$400 for eligible homeowners.

The tax deduction is limited to the 2007 tax year and is expected to cost the government $91 million in lost revenues. Congress will have to pass an MI deduction next year so homebuyers can use the deduction in 2008.

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