Well it's the New Year and like all of you out there I'm sitting here pondering the....
... pondering the tax law change that as of 1/1/07 lets us (well some us, and for one year only) deduct our private mortgage insurance (PMI) along with mortgage interest as an itemized deduction on Schedule A.
What the??????
Whose idea was that? Apparently it was the idea of private mortgage insurers who are upset that people are trying hard to keep the loan to value ratio on their properties below 80% so they do not to have to pay PMI. These borrowers are apparently choosing piggyback loans instead of taking out a loan for more than 80% of the appraised value. So boo hoo the insurers are losing business.
But aren't we supposed to encourage responsible borrowing? And isn't the average American mortgaged up to the teeth already?
Any idea how the AMT affects this? If the PMI is classified as interest, I guess it is deductible under the AMT as well.
Also, apparently California does not conform, so this yet another reason why your California taxable income will look different from your Federal taxable income.
If anyone else is lying awake wondering about the whys and hows of this, let me know.
My source for much of the above:
www.mortgagenewsdaily.com/12122006_PMI_Deduction.asp
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7 comments:
i just popped over here from I Obsess.
Hello.
I'm not going to pretend to understand any of what you just said about tax. because i'm afraid of numbers. numbers and cosmetics counters.
i just found out this morning that the area we are considering buying a house in has some villages that are classified as 'disadvantageed' because they don't have such good schools or streetlights or libraries or whatever. if you buy a house in these areas, you get a discount on the stamp duty. sounds reasonable. except thatyou have to buy a house for less than 150,000, which translates to a tiny flat. if you have children, and might actually need to use these poor facilities, you're unlikely to be buying a tiny flat.
sorry. rant rant rant. shocking propaganda by a government that says its revitalising rural communities.
oh. and. I just read your profile - I, too, like to keep a geologist in the house. very good for any kind of rock emergency, don't you find?
This is another reason I never understood tax law: I can't tell the difference between "interest" and "insurance." I mean--one factor in setting interest is to cover loss from non-performance. If the lender doesn't want to bear all that risk himself, he could always use some of that interest money to lay it off on somebody else, just like the bookies do ('buy a put;' you could even call it 'insurance'). Why should it be any different if you break it out and identify it up front?
Maybe the original error here is to allow the deduction for interest in the first place. It has screwed up corporate taxation for several generations now, and makes no conceptual sense at all in the consumer context.
Hi dodo:
Thanks for the comment. If your stamp duty is comparable to what we call property tax, then it goes back into the community to fund schools, libraries, streetlights, etc. So by offering the stamp duty discount but only up to a certain home price, it sounds like they're encouraging people who use these facilities to pay as little as possible for them!
Your story reminded me of this: in our area home prices are outrageous ($500,000 plus) and in the past year people have just stopped buying. So the new home sellers are offering "special gifts" to members of our armed forces in the form of a 2% price reduction. Now I'm not a fan of our war in Iraq but it does seem to me like a slap in the face to say: "Thanks for putting your life on the line. In return, how 'bout $10,000 off on a 500K house we're not able to sell for full price anyway?"
About the geologists around the house: yes - very useful. Except that they tend to breed small geologists who track large quantities of quarternary alluvium into the house.
Hi Buce:
"(the lender) could always use some of that interest money to lay (the risk) off on somebody else" - in effect that's what the lender is doing, isn't it - by requiring the borrower to purchase PMI he's putting the premium for risk back onto the customer. This lets the borrower feel better because he or she is getting an artificially low interest rate, but then has to pay PMI on top of it.
"but then has to pay PMI on top of it."
But doesn't this get priced into the product? Doesn't the sales person say: you'll have to pay $100 a month in insurance but it's okay, it comes off your taxes, so it is really only $60 out of pocket..."
Just saying hello!
And since when has the tax law promoted responsible anything?
/scarasm
Kelly
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