Another Tax Break for Homeowners

Unless you've spent the last six months battling day and night in World of Warcraft, you've probably noticed the minor economic jolt caused by the housing slump.

All right, it's not so minor. It has pummeled stocks like Beazer Homes (NYSE: BZH  ) and Toll Brothers (NYSE: TOL  ) , dealt a serious blow to financial companies like Citigroup (NYSE: C  ) and Countrywide (NYSE: CFC  ) , and thrown the stock market into a tailspin. It even has Washington talking about spreading around some cash to ensure that American consumers don't stop their spending spree.

And don't forget that home values are falling nationwide. Sounds like a prime time to buy a house, doesn't it?

A benefit for buyers
Even in these crazy times, some people will buy houses. Some will find a fabulous bargain. Others will have to move. Some will want to move. Believe it or not, there's a small perk out there for anyone who wants to buy a home, but doesn't have a lot of cash on hand.

About a month ago, when most of us had holiday shopping on our minds, lawmakers extended a tax deduction for private mortgage insurance. You can now take advantage of this little perk through the end of the decade.

The law lets homebuyers take an itemized deduction for the cost of private mortgage insurance on their personal residences. Lenders sometimes require private mortgage insurance (or PMI) when a borrower cannot put a 20% down payment on a home. The insurance protects the lender if you default on your loan.

The FYI on PMI
We know that you, dear Fool, have no intention of defaulting on your mortgage. But in an era when banks aren't as generous with their no-money-down mortgages and piggyback loans, you might end up paying private mortgage insurance all the same.

This law means you could qualify for a discount on those costs, at least for a while. It's yet another in a long list of tax deductions that make homeownership an attractive option for a lot of taxpayers. (Don't forget other perks, like leaky plumbing, weed-infested lawns, and termites.)

Here's the catch. You can count on that private mortgage insurance tax break being around for the three years that it's been written into law. After that? Ask your elected representatives. They don't like being responsible for tax increases, which means that temporary tax breaks often get extended year after year. But there's no guarantee. Just ask all those people who were told they would have no problem refinancing their adjustable-rate mortgages before painful interest rate hikes kicked in.

Ideally, you could build enough equity in your home that you could cancel your private mortgage insurance before the tax break ends. You can typically cancel it when you have at least 20% equity in the value of your home.

Otherwise, make sure you can pay for your private mortgage insurance without the aid of a tax break, just in case it doesn't stick around.

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10/27/2016 11:13 AM
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