Bankrate's 2009 Tax Guide
Capital gains
7 housing tax laws you don't want to miss

2. First-home buyer credit

Washington took two stabs at a tax break for buyers of a first home.

In July 2008, the Housing and Economic Recovery Act created the First-Time Homebuyer Credit. Although called a credit, the $7,500 tax break, or 10 percent of the property's purchase price (whichever is less), must be paid back. Lawmakers, however, passed the measure in the hopes that it would help some buyers get into their first homes.

This first-home tax break originally applied to first homes bought between April 9, 2008, and June 30, 2009. However, when a second measure, the American Recovery and Reinvestment Act of 2009, became law on Feb. 17, the first-time homebuyer credit became a true credit.

Now purchasers of a first home between Jan. 1 and Nov. 30 of this year can get an actual tax credit that reduces their tax bills dollar for dollar. In addition, the credit amount for qualifying 2009 home purchases is increased to $8,000.

Homebuyers also have a choice of when to claim the 2009 credit. The $8,000 amount can be taken on 2009 tax returns that are due next year or, if it makes more tax sense, the new homeowner can claim the credit on his or her 2008 return this year.

There are income limits on the 2008 and 2009 versions of the first-home buyer credit. And if you bought your first residence on or after April 9 but by Dec. 31 of last year, you must claim the earlier $7,500 amount and eventually pay it back.

You can find details on the two credits and tax year filing options in Bankrate's story, First home, new tax break."

3. PMI deduction

Typically, if your home down payment is less than 20 percent, your lender will require you to buy private mortgage insurance, or PMI. This policy protects the lender if you default, but you must pay the premiums, usually as part of your monthly mortgage payment.

However, on certain home loans issued since 2007, these premium payments have been deductible as an itemized expense. This tax break is in effect for eligible new home loans issued through the 2010 tax year.

The Form 1098 or similar year-end statement you get from your lender should show the amount of PMI premiums you paid during the tax year. Enter that figure in the "Interest You Paid" section (line 13) of your Schedule A.


The amount of PMI you may deduct is limited if your adjusted gross income is more than $100,000 ($50,000 if married filing separately). You'll get no deduction if your adjusted gross income is more than $109,000 ($54,500 if married filing separately). A work sheet on page A7 of the Schedule A instruction book, or your tax software, will help you calculate your exact PMI deduction amount.

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