It's a New Year...and already our thoughts must turn to collecting documents for tax time. But what better time to learn how you and your loved ones can pocket some extra money this year with two interesting tax tips? First, if you have a tax refund coming this year, be aware that you actually lent your good friends at the IRS your own money...interest free. Uncle Sam sure wouldn't do the same for you, so don't miss this strategy, which shows you how to keep your hard earned dollars right where they belong...in your own wallet. And next, big news from Capitol Hill, as Congress passed a groundbreaking law in the waning hours of their 2006 session...making Mortgage Insurance potentially tax deductible. This is news that will help thousands of Americans in the coming year, so don't miss this important article with all the details.

As always, please feel free to forward this issue to friends, family members or coworkers...or let me know if they'd like to enjoy their own free subscription. If you need any personal assistance at this time, simply call or email - always glad to hear from you!

So as you went out merrily spending for the holidays...were you thinking about how you'd pay the credit card bills as they begin to arrive? Maybe you were thinking you'd use that juicy tax refund you're expecting - but wouldn't it be nice if you had that money now? Sure, many individuals who are expecting refund checks have discovered services that give them an advance on their money. And while these services will give you the cash right at the time of filing for your taxes, the fees involved can take a hefty chunk out of your refund. So what's a tax (over) payer to do?

The IRS can actually help.

When you think about it, getting a refund check means that you let the IRS use your money throughout the year without paying you any interest. Wouldn't you rather have the money during the year yourself? Here's how you do it. The IRS now allows you to increase the number of dependents on your W-4 withholding form, meaning that less will be withheld for taxes from each paycheck. In the past, if you claimed greater than nine dependents, an explanation and approval may have been required. But the IRS has lifted this restriction, allowing you to voluntarily increase your dependents claimed.

This lets you have more money in each paycheck instead of "loaning" the money to the IRS and having to wait for a refund.

But let's not go overboard...you should only lessen the periodic tax withholding to match the expected refund. This way you are taking your refund as you go; instead of letting the IRS hold on to it. There is even a nifty calculator the IRS has provided for free, which lets you see how a change in withholding will affect your paycheck.

Here's the link to the free withholding calculator: IRS Bean Counter

And managing your withholding can also be a great tool if you are currently renting, but are about to buy a home. The new housing expense may be greater than the rent payments, but the new home will give you some important tax deductions. By adjusting your withholding when you buy a home, you can get the benefit of the new home deductions spread into each paycheck...which can make that new home payment a lot more comfortable.

Before you make any changes, you want to be sure you are balancing the amounts carefully and correctly, so it is always a good idea to check with your tax professional. And if you need a referral, just give a call!

As you probably know, Private Mortgage Insurance (PMI) is required any time a loan is taken out with a higher "loan to value" ratio of 80%, as the loan is riskier to the lender. Mortgage Insurance allows a consumer to purchase a home with little or no down payment, or refinance at higher loan to values than 80%...but the beneficiary of the Mortgage Insurance is the lender, as it only provides coverage to the lender to protect against financial loss should the homeowner default on the loan.

And historically, these Mortgage Insurance premiums have never been tax deductible, so many consumers turned to the "piggyback" loan strategy. A "piggyback" means the first mortgage is placed at 80% of the value of the home - therefore not requiring mortgage insurance - and the additional funds needed to finance the home were placed on a second home loan, "piggybacked" behind the first mortgage...and providing more tax-deductible interest.

But these second home loan rates have risen dramatically higher in recent years, since most are tied to the Fed Funds Rate...and the Fed has made seventeen .25% rate hikes since June 2004 - a total increase of 4.25%! And although the Fed is currently in a "paused" mode...there is debate as to whether or not the Fed is done hiking rates just yet.

But in the final session hours of 2006 - Congress passed a law with a change to the tax code which will allow Mortgage Insurance Premiums to be claimed as tax deductions for households earning less than $100k annually.

What does this mean?

Primarily, it means that mortgage options that include standard Private Mortgage Insurance will now become much more competitive and attractive, especially as the Mortgage Insurance premium payment can often be later removed with sufficient property appreciation or declining loan balance, assuming timely payments. In fact, hundreds of thousands of 2007 homebuyers or home refinancers will save an estimated total of $91,000,000 when they file their tax returns in 2008.

A few important notes:

The current legislation applies to new loans closed in 2007 only, and as such, will require another act of Congress to be extended to 2008 and beyond.

The full deduction can only be taken if your Adjusted Gross Income is $100,000 or less. There is a rapidly declining proration table for incomes up to $110,000, with no deductibility if your Adjusted Gross Income exceeds that level.

The deduction is only available if you itemize your deductions on your tax return, rather than taking the standard deduction. For most homeowners, itemizing generally makes more financial sense anyways, due to the large amount of home loan interest and real estate taxes paid, but a small mortgage may not generate enough interest charges to itemize. As a rule of thumb, the mortgage normally needs to be around $130,000 for itemizing to make good financial sense.

And although the initial payment with a Mortgage Insurance premium might be slightly higher when compared to a "piggyback" option - remember that Mortgage Insurance can often be removed in time, with property appreciation or a declining loan balance, assuming payments are being made in a timely manner.

And of course, whenever the IRS is concerned...it always makes sense to review specifics with a tax professional. We'd be happy to make a recommendation to you or your clients if you like. As always, please call with any questions - we'd be happy to get answers about these changes for you, or anyone who might be looking into a mortgage in the New Year!