Mortgage Insurance Write-Off Safe After Fiscal Cliff

Is mortgage insurance tax deductible after the fiscal cliff? You bet and here’s why:

The just-passed legislation, which must now go to the President for his signature, contains a number of “exenders.” Shoe-horned in between deductions for parking fees and local taxes we find Sec. 204 which continues the mortgage insurance write-off until the end of the year.

Why is this important?

First, million of borrowers do not have the finances to purchase homes for cash. They must borrow and if they borrow with less than 20 percent down they must purchase mortgage insurance in one of three forms:

Private mortgage insurance for conventional loans, generally with an up-front cost and then a monthly premium until the loan balance is reduced to 78 percent of the original amount.

FHA insurance requires an up-front fee as well as monthly payments until the loan balance is reduced to 78 percent of the original amount.

VA mortgage insurance which is regarded as a “guarantee.” It requires a fee at closing but no monthly premium payments.

The up-front costs can generally be rolled into a higher loan amount so that a borrower does not need additional cash to close, sometimes thousands of dollars. The monthly fees, however, must be paid out in cash making the cost of ownership higher.

The deduction is generally a 100-percent write off for married individuals filing together with an adjusted gross income of as much a $100,000. Above $100,000 the write off generally phases out and disappears when the AIG tops $110,000. There is a parallel schedule for single taxpayers which runs from $50,000 to $55,000. For specifics, speak with a tax professional.

Although the mortgage insurance write-off only began in 1997 it impacts millions of people. By allowing the write-off of mortgage insurance costs Congress makes home ownership more affordable — and wins votes from an ownership lobby which is enormous.

Unfortunately, the mortgage insurance write-off debate will be with us next year because the deduction has only been extended until December 31, 2013.

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