In its final hours, the 109th Congress passed a law permitting the tax-deductibility of mortgage insurance—with lots of strings attached.  The benefit to some homeowners is that it may be cheaper to finance a home purchase using mortgage insurance than a piggyback loan.

According to an analysis by Bankrate Monitor, a homeowner with a $180,000 mortgage would save about $351 in taxes a year because of the law. That assumes that the borrower has good credit and is in the 25 percent tax bracket.  Note that the piggyback loan is usually a second mortgage, and that interest paid on that loan is also likely tax-deductible.

The strings include:

The mortgage insurance tax deduction applies only to mortgages that are closed in 2007.

The income limits for the full deduction is an adjusted gross income of $100,000 or less.

Congress only authorized the deduction for one year.  Additional legislation would be need for the 2008 tax year and beyond.

If you take the standard deduction instead of itemizing deductions, the new law makes no difference to you.  A mortgage of $130,000 is needed to exceed the benefit of the standard deduction.  Most households with this size of mortgage has an income of at least $50,000.