Congress is considering a new tax deduction for homebuyers who could not afford a down payment amounting to 20 percent of the purchase price.
Those homeowners have to pay private mortgage insurance, which banks and lenders charge when the down payment is below the 20 percent threshold. The Associated Press reported that under a tax plan before Congress, millions of lower-income homeowners would be able deduct that cost, which is significant in some cases.
For example, the owner of a $160,000 house would pay $50 to $80 every month for private mortgage insurance, also known as PMI. The PMI deduction would be on top of the deduction that is already allowed for mortgage interest paid during the year.
The mortgage insurance tax break could help younger homebuyers and lower-income families afford a home, as gathering that initial down payment is often the biggest obstacle to homeownership.
The Associated Press reported that the tax benefit would cover 5.5 million people who pay private mortgage insurance and 7 million homeowners with Federal Housing Administration loans. The benefit starts to shrink for families earning $100,000 or more.
The tax break is worth about $500 million to homeowners over the next 10 years. The PMI tax break and other minor tax proposals were included in a bill that would reduce taxes on manufacturers.
Other items include assistance for businesses investing in rural, depopulating areas; a new tax break for companies that hire welfare recipients; extension of the $5,000 tax credit for first-time homebuyers in Washington; renewal of an expired tax deduction that allows teachers to recoup money spent on classroom supplies; and tax benefits for employers who continue to pay workers called to active duty in the National Guard or reserves.