Late in the closing session of the 109th Congress, The Tax Relief and Health Care Act of 2006 was passed by both the House and the Senate though it has not yet been signed by President Bush. Deep within the Act at Section 419 was a one page attachment entitled “Premiums for Mortgage Insurance.”

In General — Premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness with respect to a qualified residence of the taxpayer shall be treated for purposes of this section as interest which is qualified residence interest.

Basically this means that those homeowners who put down less than 20 percent of the purchase price in securing a mortgage can now deduct the cost of the private mortgage insurance (PMI) they were required to purchase to protect their mortgage lender in the event of default. This amount can now be treated as mortgage interest by itemizes when filing Schedule A of the federal tax return.

With monthly PMI payments tending to run $100 or more per month this will be a help to homeowners who are using all of their interest rate deduction but still owe income taxes.

This is good news for many taxpayers but the legislation was designed more to benefit private mortgage insurers which have been lobbying for such a change for some time. Once home buyers and loan officers caught on to a little wrinkle that allowed buyers to avoid PMI by using blended or piggy back mortgages, the use of PMI and thus the profits of the companies that write it plummeted. Blended mortgages allowed borrowers without a 20 percent down payment to take out a home equity line or a traditional second mortgage simultaneous with a first mortgage to provide the necessary down payment. This form of financing has a number of benefits but one of them was that the interest on the junior mortgage payments (with limits) was deductible.

Passing such a bill does not mean that everything will proceed as written. The IRS will issue regulations interpreting the act and hopefully this will be done in time for the April 15 filing deadline. If you are responsible for paying PMI make sure that your tax professional is aware of this new legislation.

This Weeks Real Estate Insight:

The value of the mortgage interest deduction to taxpayers this year will be $69.4 billion and represents 37% of itemized deductions, are you getting your fair share of deductions?  In order to get the most from your deductions, you really should consult a Tax Professional.

Anyone with a little vision driving through Providence these days knows that these are exciting times indeed! This week on Real Estate Insight, my guest was Lambri Zerva, principal engineer for Rhode Island Department of Transportation to discus the new 195-95 Relocation project.
 
From a planning and economic development perspective, the 195 relocation will provide many important benefits. Most of these benefits are a result of the 20-33 acres of land adjacent to downtown Providence and on the waterfront that will be freed for parks and private development.
 
The RIDOT expects the 1.6 miles of new roadway and 15 new bridges, to be open to traffic by 2010 (three years later than originally scheduled). By 2013, the remainder of the project - five miles of new service roads and city streets, 20 new acres of urban development, nearly one mile of new river walkways, several acres of new park land, and a new dam - should be completed. The development potential includes 1.6 million square feet of office and retail space, 400,000 square feet of institutional space, 700,000 square feet of multipurpose space, a 300-room hotel, housing for 620 families and parking garages for 5,000 cars.
 
Officials estimate the cost of the project at $525 million, including the cost of the work on the Washington Bridge. Bonds are financing the cost of the project.

To learn more about this project, visit the RI Department of Transportation website:

http://www.dot.state.ri.us/projects/construction/195intro.htm

This Week’s Real Estate Insight:

When you change one thing, everything changes, the 195 relocation project will correct a mistake made fifty years ago when highway engineers sent the highway right through the heart of the city. The city will also benefit by reconnecting the historic Jewelry District with Downtown.