The Wall Street Journal-20080116-Tax Break Aimed at New Mortgages
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Tax Break Aimed at New Mortgages
Homeowners with a new mortgage that is covered by insurance can claim a tax break on the insurance for the first time this year.
The new break, called the qualified mortgage insurance deduction, lets taxpayers with an adjusted gross income of less than $100,000 write off the full cost of mortgage insurance. Folks who earn less than $109,000 can take a write-off for part of it.
To qualify, the mortgage must have originated between 2007 and 2010. The deduction can be taken for insurance on a principal residence or a second home.
Introduced by the Tax Relief and Health Care Act of 2006, the break initially applied only to the 2007 tax year, but it was extended through 2010 by the Mortgage Forgiveness Debt Relief Act of 2007.
"It's something we will definitely ask our clients about," said Jackie Perlman, senior tax research coordinator at H&R Block Inc. "If you come in and say you bought a home, we'll be checking it out and making sure you get that deduction."
The mortgage-insurance deduction will help first-time home buyers who are unable to put down 20%. Typically, "if you put down less than 20% down, that's where the lender would require private mortgage insurance," said Katie Monfre, a spokeswoman for Mortgage Guaranty Insurance Corp., a private mortgage insurer in Milwaukee owned by MGIC Investment Corp.
On average, the annual tax break from the deduction will be worth around $350 per taxpayer, according to the Mortgage Insurance Companies of America, which represents mortgage insurers.
Bob Meighan, CPA and vice president at Intuit Inc., which makes TurboTax software, said he doesn't have an estimate of how many clients will take the deduction, but that claiming it is likely to be "pretty straightforward."
Private mortgage insurance protects the lender, guarding against a situation in which a borrower defaults, leaving the lender unable to recover costs after foreclosing on the loan.
About one in 10 residential mortgages are covered by private mortgage insurance, according to Jeff Lubar, a spokesman for MICA. That number rises if one includes government loans covered by mortgage insurance.
