Potential good news for home buyers.
Many home buyers, especially first time buyers, struggle with the problem of having less than 20% for the down payment. Traditionally, you can get a home mortgage with less than 20% down, but you may have to pay private mortgage insurance (PMI) to a third party. PMI premiums typically vary depending on the amount of the down payment, as well as other factors, but a yearly premium of one half percent (.5%) of the loan amount is not at all uncommon. On a $400,000 property, with 10% down, that could mean a PMI payment of $150 per month. And that PMI payment is NOT tax deductable. Only the interest on a home mortgage is tax deductable. A common workaround, for at least the last few years, has been the "piggyback" mortgage. That is, a first mortgage for 80% of the homes price, and a second mortgage to cover the remaining five, ten, and sometimes even 20 percent. While that solution has worked to avoid PMI, it's usually just a little bit less expensive than the PMI, because the second mortgage involves additional closing costs, as well as (most of the time) a higher interest rate. On the up side, all the interest is (in most cases) tax deductable.
Now there's another option, for many people. As of January 1st of this year, PMI payments may be tax deductable. That opens back up the possibility of one loan, at the first mortgage rate, and without the additional cost of a second loan. I say MY be tax deductable because there are some conditions. There is no grandfather clause, so the tax deduction only applies to PMI payments on loans originated after January 1, 2007, for homes purchased after that date. You can't go refinance the house you bought last year in order to take advantage of this savings. Also, the deduction is available to households with an adjusted gross income of $100,000. After that, the deduction drops by 10% for each $1,000 of AGI, and is gone at $110,000.
Please remember that I am NOT a tax advisor. I am simply passing on some info because it affects the purchase of real estate. I've given you the basic info as I understand it. To make sure I have it correct, and to see if you can take advantage of this tax savings program, you really should talk to a tax expert. Maybe your accountant. (If you need a good tax accountant, let me know. Alan Douglas is mine, and I'd be happy to recommend him.) If this does apply to you, maybe I helped save you a few bucks.