If you are a homeowner and bought a house in 2007, you can deduct PMI (Private Mortgage Insurance) on your 2007 tax return. The Internal Revenue Service has added a line on Form 1098 that you received from your mortgage lender that shows how much mortgage insurance you paid in 2007.

As an example, if you bought a house in 2007 and made a down payment of less than 20%, you are probably paying for mortgage insurance. If your income is $100,000 or less, you can now deduct your entire private mortgage insurance expense or PMI, or other mortgage insurance you purchased through the Veterans Association, Federal Housing Administration or Rural Housing Administration.

This PMI deduction is important in filing your 2007 tax return or late 2007 tax return. Homeowners can even state this deduction and note it as a prior year tax deduction. Remember, however, that the 2007 PMI deduction will phase out once your adjusted gross income reaches $110,000. Basically, if any homeowner puts down less than 20%, they are considered a mortgage risk. Mortgage and finance companies are utilizing piggyback loans and private mortgage insurance to ensure their risk.

A piggyback loan example would be something like this. Say you bought a house for $100,000 and received a mortgage loan in 2007 for $80,000 and were only able to put down $10,000. The other $10,000 you need was in essence a second mortgage or piggyback loan. In prior tax years if you had a standard mortgage and a piggyback mortgage, you could deduct the interest you paid on both mortgages, but not your PMI. This changed for 2007 with some restrictions.

The 2007 tax deductions for PMI are only applicable to mortgages that closed in tax year 2007. You would have to refinance your home in 2007 if your loan closed in 2006 to qualify for the PMI tax deduction. There are also some income restrictions-your 2007 adjusted gross income must be $100,000 or lower. For homeowners who have standard mortgages and piggyback loans, this tax law only applies for the 2007 tax return. The likelihood of Congress renewing this 2007 PMI tax deduction remains unknown.

To find out if you qualify for the 2007 PMI tax deduction, check with your accountant or follow the guidelines on the tax software you use at home. In the long run, experts say that homeowners should stay away from piggyback loans; however, the upside to this is that insurance premiums will most likely go down in the coming years.