Two New Tax Breaks for the Struggling Bay Area Homeowner

Adding to my last post, Mortgage Interest: A Friend to the Bay Area Home Owner, I came across two new tax breaks to help out homeowners in the Bay Area. First, Congress extended the mortgage insurance premium deduction for three more years. As you may know, mortgage insurance is sometimes required by the lender if the home owner makes a down payment of less than 20% of the appraised value of the house. Mortgage insurance protects the lender from a borrower who defaults on their loan and can be avoided by breaking up the loan into two separate mortgages. Using creative financing to eliminate mortgage insurance may not be best for your financial situation. Your Mortgage Consultant should be able to show which option works best for you. For those who do pay mortgage insurance, your costs could be 100% deductable. As with everything, there are some restrictions:

To deduct the mortgage insurance premiums paid in 2007, your loan had to be funded in 2007 and you must be within the income restrictions. If your adjusted gross income is $100,000 or less, you can deduct 100% of the mortgage insurance premiums paid in 2007. If you make between $100,000 and $109,000 your deduction will be a decreasing portion of the premium as your income increases. If you make $109,000 or more, the mortgage insurance premium deduction is completely eliminated.

The second tax break was passed at the end of 2007 and will help the homeowner facing foreclosure. Homeowners who were granted mortgage debt forgiveness on their primary residence do not have to pay taxes on their forgiveness up to $2 million. Under the previous law, if the value of your house declined, and your bank or lender forgave a portion of your mortgage, the tax code treated the amount as income that could be taxed. The new law will create a three year window for homeowners to refinance their mortgage and pay no taxes on the debt forgiveness that they receive.

If you need more information on these new laws or any tax related questions, consult your tax advisor. Or feel free to contact me and I will gladly point you in the right direction.

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1. Mortgage Interest: A Friend to the Bay Area Home Owner
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