Haris Ashley
Private Mortgage Insurance (PMI) is often required for homebuyers who put down less than 20% on their homes. While PMI was previously deductible from federal taxes for the years 2018 to 2021, it is not currently deductible for the 2024 and 2025 tax years. However, starting in the tax year 2026, PMI will be tax-deductible again, with a cap of $750,000 for most homeowners. Homeowners who earn less than $100,000 in adjusted gross income will typically be eligible to deduct their PMI premiums. Additionally, you can request to cancel your PMI when you have reached 20% equity in your home.
| Characteristics | Values |
|---|---|
| PMI tax-deductible | No, but it will be in 2026 |
| PMI premiums | Count as mortgage interest, capped at $750,000 |
| Income limits | Homeowners who earn less than $100,000 |
| Removal of PMI | When you have 20% equity in your home |
| Lender requirements | Removal of PMI under their own standards |
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What You'll Learn
PMI tax-deductibility in the US
Private mortgage insurance (PMI) was first made tax-deductible in 2007, but the deduction expired after the tax year 2021. The deduction was not extended beyond 2021, and thus it is not available for the tax years 2022, 2024, and 2025.
However, private mortgage insurance premiums will become tax-deductible again in the US beginning with the tax year 2026. Once the new mortgage insurance deduction goes into effect, PMI premiums will count as mortgage interest, which is capped at $750,000 for most homeowners ($375,000 for married couples filing separately).
To be eligible for the deduction, you must meet certain annual income limits. Generally, homeowners who earn less than $100,000 (adjusted gross income) will be able to deduct their mortgage insurance premiums. Above this threshold, the benefit starts to phase out. For example, in 2021, the deduction was not allowed for taxpayers with an AGI over $109,000 or $54,500 for married couples filing separately.
It's important to consult a tax advisor about the applicability of this deduction to your particular circumstances under the Internal Revenue Code and the laws of any other taxing jurisdiction.
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Cancelling PMI
Private mortgage insurance (PMI) is often required for homebuyers who put down less than 20% on their homes. This insurance can come to hundreds of dollars each month. However, there are ways to cancel PMI and save money.
Firstly, it's important to note that lenders may automatically remove PMI when you reach 22% equity in your home. If you have 20% equity, you can request that your PMI be cancelled. This may save you money in the long run. To estimate the amount your mortgage balance needs to reach to be eligible for PMI cancellation, multiply your home's purchase price by 0.80. You can also pay down your mortgage earlier by making biweekly payments or an additional payment each year, or by paying one lump sum at any time.
Alternatively, you can request that your lender cancel PMI sooner, when your mortgage balance hits 80% of your home's purchase price. This can be done by making a written request to your lender or servicer. You will need to be current on your mortgage payments and have a good payment history for this request to be granted.
Another option is to refinance your mortgage. With today's high home values, you may have the equity you need to refinance and avoid paying PMI. You can also reappraise your home. If you've owned your home for at least five years and your loan balance is no more than 80% of the new valuation, you can ask for PMI cancellation.
Finally, your lender or servicer must end the PMI the month after you reach the midpoint of your loan's amortization schedule. For 30-year loans, the midpoint is after 15 years.
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FHA mortgage insurance premiums
Private mortgage insurance (PMI) is typically required for homebuyers who put down less than 20% on their homes. This insurance is paid to private mortgage companies and can be removed once the borrower reaches 20% equity in their home. Lenders may also automatically remove PMI when the borrower reaches 22% equity.
FHA loans are insured by the Federal Housing Administration (FHA), which operates under HUD. The insurance reduces the risk for lenders, allowing them to offer loans with lower down payments and more flexible credit requirements. There are two types of mortgage insurance premiums for FHA loans: a one-time upfront fee and a recurring annual fee. The upfront MIP rate is currently 1.75% of the base loan amount, while the annual MIP ranges from 0.15% to 0.75%, depending on the loan amount and loan-to-value (LTV) ratio. Most borrowers pay an annual MIP rate of 0.55%.
Regarding tax deductions, PMI premiums were deductible for tax years 2018 through 2021 if qualified taxpayers filed amended federal tax returns. The deduction expired at the end of 2021 but will be available again for the tax year 2026. When the deduction goes into effect, FHA mortgage insurance premiums will be eligible for potential savings.
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Income limits for PMI deductions
The Private Mortgage Insurance (PMI) deduction has been set to be available again in the tax year 2026, for the first time since 2021. The full PMI deduction will be available for homeowners earning less than $100,000 per year. The savings from the PMI deduction depend on your tax bracket and how much you pay in premiums.
Homeowners paid around $50 per month in PMI premiums on average for every $100,000 of financing when the deduction was previously available. The amount of the down payment, the type of loan, and lender requirements could all affect your actual cost. For example, if you bought a $200,000 home, put down 5%, and paid $1,500 in PMI premiums over a year, your savings would depend on your tax bracket. If your adjusted gross income (AGI) was $100,000, you would save $180 if you were in the 12% tax bracket, and $330 if you were in the 22% tax bracket. The deduction would reduce your taxable income by $1,500.
The PMI deduction was not allowed for taxpayers with an AGI over $109,000 or $54,500 for married couples filing separately in 2021. If your AGI is between $100,000 and $109,000, you can use the worksheet included with Schedule A to figure out your deduction.
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Lender-specific PMI removal
- The loan has not been more than 60 days past due in mortgage payments in the last two years or 30 days past due in the last year.
- There has been no decline in the property's value based on the actual sales price or original appraised value.
- There are no subordinate liens, such as a second mortgage.
- The loan-to-value (LTV) ratio reaches 80% based on actual payments or the initial amortization schedule and initial appraised value.
You can request PMI cancellation when your loan balance falls below 80% of your home's original value. This information is on the PMI disclosure form provided by the lender. You can also ask for cancellation when your balance hits 78% of the original value, provided your payments are up to date.
Some lenders may allow PMI removal under their own standards. For example, your lender may require you to reach the midpoint of your loan's amortization schedule, which is halfway through the original full term of your loan. For 30-year loans, this midpoint is after 15 years.
It's important to note that PMI removal policies can vary, so it's always best to review your loan documents or contact your lender directly to understand their specific requirements and process for removing PMI.
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Frequently asked questions
No, PMI is not currently deductible for the 2024 and 2025 tax years.
PMI will become tax-deductible in tax year 2026.
Generally, homeowners who earn less than $100,000 (adjusted gross income) will be able to deduct their mortgage insurance premiums.
You can request to cancel your PMI when you have 20% equity in your home, i.e., when your loan-to-value ratio falls below 80%. This may vary depending on your lender.
