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Private mortgage Insurance (PMI) is an insurance premium paid by the borrower each month as part of his/her mortgage payment if their mortgage balance is more than 80% of the property’s appraised value or sales price, whichever is lower, at the time of settlement. For example, an individual is buying a home and the sales price is $200,000. He has $10,000 for a down payment. Since $10,000 is only 5% of the sales price, he will have a loan of 95% of the sales price or $190,000, the lender requires you to have PMI which is added to the monthly payment. The premium amount you pay is based on the type of loan, individual credit scores and other factors.

After hearing references from some of my lenders about a new PMI tax deduction, I contacted my CPA who provided the following guidelines for those interested in whether or not they qualify for this deduction:

1. The deduction is in effect for the tax year 2007 only.

2. The deduction applies to purchase loans primarily rather than loans that are refinanced with PMI. If it is a cash-out refinance and 100% of the proceeds go toward home improvement, then the deduction may apply but this is subject to interpretation and you should review this with a tax professional.

3. The deduction only applies to taxpayers with adjusted gross income of $100,000 or less. It is pro-rated to some degree for taxpayers with adjusted gross income between $100,000 and $110,000. A taxpayer whose adjusted gross income is over $110,000 does not qualify for the deduction.

4. The insurance coverage must be provided by the VA, FHA, RHA, or private lenders defined in Sec 2 of the HPA of 1998.

While this very general overview can help some homeowners better understand how they may qualify for this deduction, it is not definitive. As with any deduction, a taxpayer must review the guidelines carefully and preferably confer with a tax professional to be certain they are eligible.