Don't Mess With Taxes

Some homeowners who make a private mortgage insurance (PMI) payment each month along with their loan's principal and interest will be able to get a little extra tax help here.

PMI is a policy that as a home buyer you pay for, but it protects your lender in case you default. Generally, you must make a 20 percent or more down payment to avoid this coverage. Once you're in the house, when you build enough equity you might be able to persuade your lender to let you drop the insurance.

In the meantime, you gotta pay for the policy. And while many other home-related costs are deductible, this insurance hasn't been. Until now.

Tucked into the just-passed H.R. 6408, the Tax Relief and Health Care Act of 2006 that extended some popular tax breaks that expired last year, is a provision that will allow some taxpayers to deduct their PMI costs along with other itemized expenses on Schedule A.

The insurance industry, which has been lobbying for this tax break for years, estimates it could save eligible households $200 to $400 a year.

But don't start spending that money yet. The key word, as in every piece of tax legislation, is eligible.

First there's an income limit. If your adjusted gross income is more than $100,000, the deduction is phased out by 10 percent for each $1,000 it's over that amount. And if you hit $110,000 then you're out of luck, at least as far as this deduction goes.

You're also out of luck if you've already got a mortgage with PMI. The write-off is available only for mortgages obtained in 2007 and for insurance amounts paid or accrued in that year.

And, as is the legislative style of Congress nowadays, this deduction is temporary. It will expire on Dec. 31, 2007, unless the incoming 100th Congress -- wait for it, literally -- extends the tax break next year.