Mortgage Insurance Premium Deduction for Homeowners

The mortgage insurance premium deduction is a tax benefit that can save homeowners thousands of dollars each year. If you're one of the millions of homeowners who pay private mortgage insurance (PMI), you may be eligible for this deduction.

The IRS allows homeowners to deduct PMI premiums on their tax returns, which can result in significant savings. For example, if you paid $1,200 in PMI premiums in a year, you could deduct that amount from your taxable income.

This deduction is only available to homeowners who pay PMI, not those who pay mortgage insurance through the Federal Housing Administration (FHA).

The mortgage insurance premium deduction can be a bit confusing, but let's break it down. The deduction was tax deductible in 2007, but it expired after tax year 2021.

To be eligible for the deduction, you need to have a maximum income threshold of $109,000. This means if your income is below this threshold, you can claim a PMI deduction on your 2021 taxes.

The deduction applies to mortgage insurance premiums paid during the year, which are reported on Form 1098. You can find the amount you paid in premiums in Box 5.

If you're filing a return for tax year 2021 or earlier, you can claim the mortgage insurance premium deduction on Schedule A under the interest paid section. This includes amounts paid or accrued in 2021.

Here are some key facts about the mortgage insurance premium deduction:

Deductions related to mortgages must be for a home acquisition debt on a first or second home. A home acquisition debt is one whose proceeds are used to buy, build, or substantially improve a residence.

Mortgage insurance premiums are required for FHA loans, but not for conventional loans, unless a home down payment is less than 20% of the purchase price.

The type of loan you have will determine whether you need mortgage insurance premiums. If you have an FHA loan, MIP is required.

Private mortgage insurance (PMI) is typically only required for conventional loans with a down payment of less than 20%. However, MIP is required for all FHA loans.

Your lender will send you Form 1098, which lists your mortgage payments over the past year and includes the total amount of MIP premiums.

The cost of mortgage insurance premiums can be a significant upfront expense. The upfront MIP is 1.75% of the loan amount, so if you borrow $200,000, you'll pay $3,500 at closing.

The annual payment portion varies depending on the loan terms. It's between 0.15% and 0.75% of the loan amount, and the lowest annual payment portion is for loans of less than 90% LTV and 15 years in length.

The current rates for mortgage insurance premiums are a crucial consideration when it comes to deducting them on your taxes.

The standard premium rate is 0.45% of the original loan amount, but this can vary depending on your loan type and other factors.

If you have a Federal Housing Administration (FHA) loan, you can expect to pay a premium of 1.75% of the original loan amount upfront.

For conventional loans, the premium rate is typically 0.35% to 0.40% of the original loan amount annually.

The IRS allows you to deduct the mortgage insurance premium as an itemized deduction on your tax return, but only if you itemize your deductions.