There is a new deduction available for home mortgage insurance premiums paid or accrued after December 31st, 2006 and before January 1st, 2008.  This item will be included as mortgage interest on your individual income tax return.

The premium you pay or accrue in connection with acquiring a qualified residence is treated as qualified residence interest and is therefore deductible.  For purposes of this deduction, insurance provided by the Veteran’s Administration, the Federal Housing Administration, the Rural Housing Administration, and private mortgage insurance is qualified.    

The amount of the deduction begins to phase out if your Adjusted Gross Income (AGI) exceeds $100,000 for single and joint filers ($50,000 for married filing separate filers {MFS}).  The deduction is phased out at a rate of 10% for each $1,000 ($500 if MFS) that your AGI exceeds the limit.  For Example:

Single & Joint Filers (Not Exceeding AGI Limits):

Mr. & Mrs. Taxpayer have AGI equaling $90,000.  If they paid $2,000 for home mortgage insurance premiums in 2007, they would not be limited in their claim for this deduction.   

Single & Joint Filers (Exceeding AGI Limits):

Mr. & Mrs. Taxpayer have AGI equaling $105,000.  If they paid $2,000 for home mortgage insurance premiums in 2007, they would be limited in their deductible amount to $1,000.  Since the difference between the AGI limit and the Taxpayers’ AGI is $5,000, the 10% phaseout rate would be multiplied by 5 (one for each $1,000 that exceeds the AGI limit), or 50%.  The amount of insurance premiums paid, or $2,000 is then multiplied by 50%, equaling $1,000.  This $1,000 is deductible as mortgage interest on Schedule A.  

Separate Filers:

Mr. & Mrs. Taxpayer file their returns separately.  Mr. Taxpayer’s AGI is 51,000 for the year.  Mr. Taxpayer chose to claim the mortgage insurance premiums on his return.  He would be limited in his deduction to $1,600. 

Since the difference between the AGI limit and his AGI is $1,000, the 10% phaseout rate would be multiplied by 2, (one multiple for each $500 that exceeds the AGI limit), or 20%.  The amount of the insurance premiums paid, or $2,000 is then multiplied by 20%, equaling $1,600.  This $1,600 is deductible as mortgage interest on Schedule A.  Mrs. Taxpayer cannot separately claim the deduction, it is therefore advisable to consider both tax situations before electing who will claim the deduction. 

Keep in mind that your itemized deductions can be limited by a number of factors, this deduction is one of many on the Schedule A.  All taxpayers may not receive the maximum benefit of this deduction due to their individual income and deduction limitations.  Additionally, this deduction does not apply with respect to any mortgage insurance contract issued before January 1st, 2007.  The deduction does not apply to amounts paid or accrued after December 31st, 2007, or to amounts that are properly allocable to any period after that date.    

To ensure you receive the maximum deduction possible, it is advisable to schedule an appointment with one of our tax professionals to discuss any concerns you may have in claiming this deduction.  Call us at 785-272-4484 or visit us on the web at www.ssccpas.com to set up your appointment today.