货币英语 03 2007 PMI Tax Deduction

By Elizabeth Carlassare. 

Today’s topic is a new tax-deduction² for homebuyers.

A nifty new tax deduction is available to homebuyers this year. In late December, the President signed a tax relief act into law that makes mortgage insurance for homes purchased in 2007 tax deductible.

OK, so what exactly is mortgage insurance and under what circumstances can you deduct¹ it?
Private Mortgage Insurance (PMI)
Private Mortgage Insurance (also known as PMI) is insurance that protects the lender, not you. If you buy a home, the lender typically requires that you pay PMI if the amount of your loan is 80% or greater than the value of the house. The idea is that a loan that’s more than 80% of the value of the house is a riskier³ loan for the lender to make. In the eyes of the lender, you might be more likely to walk away from the loan or be stretching more financially to buy the house since you put less than 20% down. (In reality, these assumptions may or may not be the case – for example, many homebuyers and investors⁴ can put 20% or more down, but choose not to so that they can keep more of their money working for them through their other investments.)

If the borrower defaults, PMI insures the lender in the event that they need to foreclose on the house. Even though this insurance protects the lender, unfortunately, the borrower pays for it.
How Does PMI Work?
PMI is a charge that’s typically added to your monthly mortgage payment. The cost of PMI increases as your down payment decreases. The annual cost of PMI varies but is generally around 0.5% of the loan amount. And, getting rid of PMI isn’t always straightforward⁵, but it’s usually possible after you have at least 20% equity⁶ in the house (more on this topic in a future episode).

One of the drawbacks of PMI is that, until this year, it hasn’t been tax deductible. As a result, creative solutions have been invented to either avoid PMI or make it tax deductible.
How to Avoid PMI
One creative solution that’s frequently used to avoid paying PMI is getting two loans instead of one. Let’s say, for example, that you want to purchase a house and put 5% down. You can avoid PMI by getting a first loan for 80% of the home value and a second loan for the remaining 15%.

Using two loans together in this way to avoid paying PMI is called a piggy-back loan. The second loan “piggy backs” on the first loan. The second loan can be a home-equity line of credit or a fixed-rate second mortgage.

Homebuyers putting less than 20% down have typically used a piggy-back loan to avoid PMI. Before this year, it was almost always a better deal than paying PMI because the mortgage interest for both the first and second loans is deductible if you itemize deductions⁷.

A creative solution for those who have wanted to put less than 20% down and don’t mind taking PMI so long as they can deduct it has been to go with a lender who will roll the cost of PMI into your interest rate. By charging a slightly higher mortgage interest rate, the lender can pay the PMI for you and you get to deduct the cost. One drawback of this strategy, however, is that you can’t get rid of the PMI without refinancing the loan.

But with the new tax relief act, you can now deduct PMI for a home or a second home that you purchase in 2007 if you are eligible⁸. The new law applies for new purchase loans originated in 2007. It doesn’t apply to refinanced loans.
Who Can Deduct PMI?
OK, so who is eligible to deduct PMI? You can deduct PMI if your adjusted gross income is $100,000 or less (or $50,000 if you are married and filing separately). For adjusted gross incomes between $100,000 and $110,000, the PMI deduction phases out: it’s reduced by 10% for each $1000 that your adjusted gross income exceeds $100,000. If your adjusted gross income is $110,000 or more, the deduction is not available to you.

Remember that your adjusted gross income or AGI is your income minus most deductions, including mortgage interest. So keep in mind that if you buy a house this year, your AGI may be lower if you itemize deductions and deduct your new mortgage interest. Consult a tax advisor⁹ if you need help estimating your AGI and eligibility¹⁰ for deducting¹¹ PMI.

The new law that makes PMI deductible is in effect only for 2007. However, it’s likely to be renewed by Congress beyond 2007 (for more up-to-date information about PMI, please see episode 176).

The goal of this tax law change is to bring homeownership within reach of more people and make saving up a big down payment less of a barrier to homeownership. Remember, though, that the new deduction applies to loans on homes purchased in 2007. It doesn’t apply to loans taken out before this year.

So, if you’re planning on buying a home or second home this year and are eligible to deduct PMI, ask your mortgage broker¹² or lender to show you the cost of paying PMI versus¹³ the cost of having a second loan. Compare the two costs and go with the deal that’s better for you. For a link to a calculator that compares the cost of a second loan versus PMI, go to the bottom of this page.
Administrative¹⁴

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1 deduct   

vt.扣除，减去

参考例句：

• You can deduct the twenty - five cents out of my allowance.你可在我的零用钱里扣去二角五分钱。
• On condition of your signing this contract,I will deduct a percentage.如果你在这份合同上签字，我就会给你减免一个百分比。

2 deduction   

n.减除，扣除，减除额；推论，推理，演绎

参考例句：

• No deduction in pay is made for absence due to illness.因病请假不扣工资。
• His deduction led him to the correct conclusion.他的推断使他得出正确的结论。

3 riskier   

冒险的，危险的( risky的比较级 )

参考例句：

• Now they are starting to demand higher returns on riskier assets. 而今他们开始在风险更高的资产上要求更高的回报。
• The problem with that: RIM's business is getting riskier every quarter. 不过问题也随之而来：RIM面临的业务风险正逐季增大。

4 investors   

n.投资者，出资者( investor的名词复数 )

参考例句：

• a con man who bilked investors out of millions of dollars 诈取投资者几百万元的骗子
• a cash bonanza for investors 投资者的赚钱机会

5 straightforward   

adj.正直的，坦率的；易懂的，简单的

参考例句：

• A straightforward talk is better than a flowery speech.巧言不如直说。
• I must insist on your giving me a straightforward answer.我一定要你给我一个直截了当的回答。

6 equity   

n.公正，公平，（无固定利息的）股票

参考例句：

• They shared the work of the house with equity.他们公平地分担家务。
• To capture his equity,Murphy must either sell or refinance.要获得资产净值，墨菲必须出售或者重新融资。

7 deductions   

扣除( deduction的名词复数 )； 结论； 扣除的量； 推演

参考例句：

• Many of the older officers trusted agents sightings more than cryptanalysts'deductions. 许多年纪比较大的军官往往相信特务的发现，而不怎么相信密码分析员的推断。
• You know how you rush at things,jump to conclusions without proper deductions. 你知道你处理问题是多么仓促，毫无合适的演绎就仓促下结论。

8 eligible   

adj.有条件被选中的；(尤指婚姻等)合适(意)的

参考例句：

• He is an eligible young man.他是一个合格的年轻人。
• Helen married an eligible bachelor.海伦嫁给了一个中意的单身汉。

9 advisor   

n.顾问，指导老师，劝告者

参考例句：

• They employed me as an advisor.他们聘请我当顾问。
• The professor is engaged as a technical advisor.这位教授被聘请为技术顾问。

10 eligibility   

n.合格，资格

参考例句：

• What are the eligibility requirements? 病人被选参加试验的要求是什么？ 来自英汉非文学 - 生命科学 - 回顾与展望
• Eligibility for HINARI access is based on gross national income (GNI). 进入HINARI获取计划是依据国民总收入来评定的。

11 deducting   

v.扣除，减去( deduct的现在分词 )

参考例句：

• Deducting drop size and velocity from circular blood stains. 如何从循环的血液中降低血滴的大小和速度。 来自电影对白
• Ordinary shareholders receive dividend from profit after deducting the preference shares dividend. 普通股股东可获派剩馀的盈利为股息。 来自互联网

12 broker   

n.中间人，经纪人；v.作为中间人来安排

参考例句：

• He baited the broker by promises of higher commissions.他答应给更高的佣金来引诱那位经纪人。
• I'm a real estate broker.我是不动产经纪人。

13 versus   

prep.以…为对手，对；与…相比之下

参考例句：

• The big match tonight is England versus Spain.今晚的大赛是英格兰对西班牙。
• The most exciting game was Harvard versus Yale.最富紧张刺激的球赛是哈佛队对耶鲁队。

14 administrative   

adj.行政的，管理的

参考例句：

• The administrative burden must be lifted from local government.必须解除地方政府的行政负担。
• He regarded all these administrative details as beneath his notice.他认为行政管理上的这些琐事都不值一顾。