Top New Tax Breaks You Should Know About

If you're starting to prepare you 2007 taxes then you'll need to make sure that you look at every possible tax break possible. The more money you save for yourself and don't give to the government (legally of course) the better. Today I'm going to go over a few new tax breaks for 2007 and a couple that aren't used very often. Take a few minutes to get an overall view of these three tax tips and make sure you haven't overlooked anything.

Private Mortgage Insurance Deduction

If you bought a new residence and paid under 20% of its value as a down payment, your lender probably required that you purchase PMI or Private Mortgage Insurance. If you acquired a loan in 2007 and were required to purchase PMI you could be eligible for a tax deduction based on your PMI payments. Of course there are a few things you'll need to check:

- PMI is insurance taken out on the balance of your mortgage and doesn't cover hazards for your house. Make sure you don't mistake PMI as normal home insurance, they are two different things.

- Typically the PMI deduction is only available to those with incomes less than $100,000 and $50,000 as married and filing separately. This break is only good for your primary residence, so don't get excited and think yippee...I get a break on my vacation home in Big Bear.

- If PMI was taken out on a home equity line, then the deduction is only good for the portion of the loan you're using to improve your home.

Deduction On The Home Office

If you are a small business owner and run your business out of a spare bedroom in your home that's used exclusively for business you might be eligible for a home office deduction. With a home office deduction you can write off that portion of your home used for business purposes AND the percentage of your mortgage payments and utility bills that represent that portion of your home.

You'll need to determine the percentage of the square footage used for business when calculating the eligible amount. For example, if your home is 3000 square feet and your home office is 300 square feet you can write 10% of your mortgage payment, utilities, etc, as a business expense.

If your home office is eligible for this deduction you can reduce your tax bill drastically. Remember to only use space actually used for business purposes.

Debt Forgiveness On Your Home Mortgage

Over the past six months the home mortgage crisis has been in the news almost everyday. Foreclosures and loan defaults are increasing at amazing rates. Because of this the banks are more willing to work with financially distressed home owners that have borrowed money by restructuring the terms of their existing loan or writing off a portion of the principal. That being said, keep in mind that the amount forgiven by the bank might be an amount that you're liable to pay taxes on.

There's some good news though! The Mortgage Debt Forgiveness Act of 2007 is a law for homeowners that received debt forgiveness on their primary residence. Under this new law homeowners won't owe taxes on the forgiven amount if they meet certain requirements:

- The amount forgiven does not exceed $2,000,000 or $1,000,000 if married and filing separately.

- The amount forgiven was discharged in 2007.

You might save an enormous amount of money if you qualify for the Debt Forgiveness Act of 2007, so make sure you check it out if you think you might fall into this category.

In Closing

Make sure you check with your tax professional before filing and do your best to keep your tax bill as low as possible by investigating deductions like the ones we mentioned today.