Private mortgage insurance now a tax write off
A new law allows many recent home buyers to slash their tax bill by deducting the cost of their private mortgage insurance. FHA and VA borrowers can qualify for the write-off, too.
Q. You recently wrote that, for the first time ever, some homeowners who pay for private mortgage insurance will be allowed to deduct their costs on their upcoming tax return. Can you provide details?
A. Sure. Lenders often require borrowers who make a down payment of less than 20 percent to purchase private mortgage insurance -- commonly called PMI -- before the lenders will issue a loan. The insurance policy will reimburse the bank for any losses if the account goes into default, but easily can cost the borrower more than $1,000 or $2,000 a year.
Congress and President Bush approved the new PMI deduction a few months ago. To be eligible for the write-off, your policy must have been issued on or after Jan. 1, 2007. You cannot take the deduction if the policy was purchased in 2006 or before.
Mortgage insurance paid on loans issued in 2007 and backed by the Federal Housing Administration, the Department of Veterans Affairs and the Rural Housing Service also may qualify for the new deduction. The eligible amount should appear in a separate box on Internal Revenue Service Form 1098, the same document that banks use to notify borrowers how much interest they paid during the year.
It's important to note that only a portion of your mortgage-insurance payments can be deducted if you're a joint tax-filer with an adjusted gross income of more than $100,000, or if you're a single tax-filer with an adjusted gross of $50,000. No deduction is allowed for joint-filers with an AGI above $109,000, or singles whose adjusted gross tops $54,500.
For more information, call the IRS toll-free at 800-829-1040 and request Publication No. 936, Home Mortgage Interest Deduction, or download the document from www.irs.gov. Consult a tax professional for additional details.
Q. I am trying to sell my home, and I held my first open house last weekend. One of the prospective buyers who came asked me if my neighborhood "has a lot of minorities living here." I am in a racially mixed area, but I didn't really know how to respond. What is the best way to answer this type of question?
A. The best way to answer such questions is carefully.
The federal Fair Housing Act makes it clear that you cannot refuse to sell to a prospective buyer based solely on the buyer's race or religion, just as landlords can't refuse to rent an apartment simply because an applicant is black or Jewish. But the rules that govern comments about an entire community's racial and ethnic makeup are murkier, and the slightest misstatement by a seller can result in a fair-housing lawsuit or even criminal prosecution.
When asked about the overall makeup of a neighborhood or its schools, attorneys at the National Association of Realtors suggest that sellers and landlords explain that the Fair Housing Act prohibits them from providing that kind of information and to recommend that the prospective buyer or renter "contact the school district, municipal government or local library" for the requested statistics.
Some buyers or renters won't like such a response and will decide to look for someplace else to live, but it's better for sellers to lose a prospect than to risk violating federal and state fair-housing laws.
Q. My husband and I are both 72 years young, and we have been married for 51 years. We already have made out a will, but now we would like to create a living trust so that our home and other assets could pass to our heirs without them paying a bunch of legal fees in probate court. But if we create a trust, who should be named the "trustee" -- me or my husband?
A. The trustee is the person who will manage and control the trust's home and other assets while you are alive. Your letter suggests that both you and your spouse are in good physical and mental shape, so the trust documents you sign should list both of you as co-trustees -- thus allowing one to automatically take control when the other dies or becomes incapacitated by an illness.
You also will need to designate a successor trustee. This is the person (or perhaps a bank or other organization) that you want to control the trust after both of you have passed away. The successor trustee's primary job is to ensure that your assets are distributed to your heirs according to the wishes spelled out in your trust or will.
© 2008, Cowles Syndicate Inc.