Writing Off Mortgage Insurance: Strategies For Tax Benefits

Private mortgage insurance (PMI) is often required for homebuyers who put down less than 20% on their homes. This insurance was not deductible from federal taxes for years, but legislation has evolved, and there have been periods where PMI and MIP tax deductions were allowed for eligible taxpayers. For example, the Further Consolidated Appropriations Act of 2020 allowed MIP and PMI tax deductions for tax years 2018 through 2021. However, this deduction expired at the end of 2021, and currently, mortgage insurance premium tax deductions are not available on any loans. Homeowners may still be able to benefit from other tax deductions, such as the yearly mortgage interest deduction and state and local real estate tax deductions.

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Private mortgage insurance (PMI) and tax

Private mortgage insurance (PMI) is an extra expense for conventional mortgage borrowers who make a down payment of less than 20%. PMI is not a requirement for all types of mortgages. It only applies when the borrower obtains a conventional mortgage with a down payment of under 20%. The amount you pay for PMI depends on your loan and down payment size, the type of mortgage, and your credit score.

PMI is arranged by the lender and provided by private insurance companies. It protects the lender against loss caused by borrowers failing to make loan payments. It's important to note that PMI does not protect you if you fall behind on your mortgage payments, and you can still lose your home through foreclosure.

Regarding tax deductions for PMI, it's important to note that the situation has evolved over time. PMI has been tax-deductible for homeowners off and on in recent decades. Specifically, for the tax years 2018 through 2021, homeowners paying PMI were allowed to write off the premiums. However, this deduction expired at the end of 2021, and it has not been renewed or extended by Congress as of 2025. Therefore, PMI is not currently tax-deductible.

While PMI is not deductible, there are other tax deductions that homeowners can leverage. For example, the mortgage interest paid yearly is still tax-deductible within certain parameters. Additionally, state and local real estate taxes may also be deductible, depending on the area. Homeowners can consult with tax advisors to understand their specific deductions and how PMI may have impacted their taxes in previous years.

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Mortgage insurance premium (MIP) and tax

Mortgage insurance premium (MIP) is a type of mortgage insurance that is required of homeowners who take out loans backed by the Federal Housing Administration (FHA). Unlike conventional loans, which typically only require private mortgage insurance (PMI) if a home down payment is less than 20% of the purchase price, all FHA loans require MIP.

Private mortgage insurance (PMI) and mortgage insurance premiums (MIP) are often required for homebuyers who put down less than 20% on their homes. These insurance premiums were not deductible from federal taxes for years, but the legislation surrounding this has evolved. The Further Consolidated Appropriations Act of 2020 allowed MIP and PMI tax deductions for tax years 2018, 2019, 2020, and 2021 if qualified taxpayers filed amended federal tax returns. The deduction wasn't allowed for taxpayers with an AGI over $109,000 or $54,500 for married couples filing separately in 2021.

The mortgage interest statement you receive should show not only the total interest paid during the year but also your mortgage insurance premiums and deductible points paid during the year. You will generally receive a Form 1098 or a similar statement from the mortgage holder if you paid $600 or more of mortgage interest during the year on any one mortgage. This form will show the total interest you paid during the year, any mortgage insurance premiums you paid, and if you purchased a principal residence during the year.

The itemized deduction for mortgage insurance premiums expired as of 2021. Homeowners who took out or refinanced a mortgage before 2021 could qualify for the PMI tax deduction depending on their income, but this federal tax provision has expired. As of tax year 2022, the PMI tax deduction is no longer available, so you can’t claim it on your 2023 tax return.

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Tax years 2018-2021

The private mortgage insurance (PMI) deduction was available for the 2018–2021 tax years. The Further Consolidated Appropriations Act of 2020 allowed PMI tax deductions for 2020 and 2021 and retroactively for 2018 and 2019 if taxpayers filed amended returns. However, this deduction expired at the end of 2021 and is not available for the 2022 tax year or subsequent years.

The PMI deduction was only applicable to refinanced funds up to the original loan amount, not any additional money borrowed. To qualify for the deduction, the PMI policy's mortgage had to be originated after 2006, and the deduction was reduced once the adjusted gross income (AGI) exceeded $100,000 ($50,000 if married filing separately) and completely eliminated with an AGI above $109,000 ($54,500 married filing separately). The deduction was also not allowed for taxpayers with an AGI over $109,000 or $54,500 for married couples filing separately in 2021.

To claim the PMI deduction, eligible homeowners had to itemize their tax deductions. Private mortgage insurance is considered an itemized deduction, and it will only impact your return if your itemized deductions surpass your standard deduction. With the significant increase in standard deductions following the Tax Cuts and Jobs Act of 2017 (TCJA), many homeowners who might have formerly itemized mortgage-related deductions now take the standard deduction, simplifying their returns.

If you were eligible for the PMI deduction but didn't claim it, you may be able to amend your old returns to claim it retroactively for the 2018–2021 tax years. However, it's important to note that the ability to amend returns and claim the deduction retroactively may have expired or may soon expire, so it's best to consult with a tax professional or the IRS for the most up-to-date information.

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Cancelling PMI

Private mortgage insurance (PMI) is often required for homebuyers who put down less than 20% on their homes. However, there are several ways to cancel PMI.

Firstly, you can request PMI cancellation when your mortgage balance reaches 80% of the original value of your home. This is the loan-to-original-value (LTOV) ratio. You can calculate your LTOV by dividing your current unpaid principal balance by the purchase price of your home or the appraised value at closing, whichever is less. You can reach this threshold faster by paying extra towards your principal.

Secondly, your lender or servicer must automatically terminate PMI the month after you reach the midpoint of your loan's amortization schedule, or when your loan's balance reaches 78% of the home's purchase price, whichever comes first. For a 30-year loan, the midpoint is after 15 years.

Thirdly, you can refinance your mortgage to a conventional loan to get rid of PMI or MIP. With rising home values, you may have the equity required to refinance.

Finally, you can request an appraisal of your home. If you've owned the 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. If you've owned the home for at least two years, your remaining mortgage balance must be no greater than 75% of the new valuation.

It is important to stay on top of your mortgage payments and request PMI cancellation when appropriate.

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Mortgage interest and tax

For many years, private mortgage insurance (PMI) was not deductible from federal taxes. However, the legislation surrounding this has evolved in recent times. The Further Consolidated Appropriations Act of 2020 allowed eligible taxpayers to deduct mortgage insurance premiums (MIP) and PMI for the 2018, 2019, 2020, and 2021 tax years. This provision has now expired and PMI is not deductible for the 2024 tax year. However, there are ongoing efforts to convince lawmakers to reinstate the PMI deduction for the 2025 tax year.

The PMI deduction was only available to eligible homeowners who itemized their tax deductions. Taxpayers with an adjusted gross income (AGI) over $109,000 or $54,500 for married couples filing separately in 2021 did not qualify for the deduction. Homeowners who took out or refinanced a mortgage before 2021 may have qualified for the PMI tax deduction depending on their income.

If you qualify for the PMI deduction, you can deduct your PMI or MIP from your federal taxes for the applicable tax years. You can use the deduction on line 8d of Schedule A (Form 1040) for amounts paid or accrued. It's important to note that the mortgage insurance premium deduction is only available for eligible homeowners for the 2018-2021 tax years. If you qualify for the deduction but didn't take it, you may be able to amend old returns to claim it retroactively.

While the PMI deduction is no longer available, homeowners may benefit from other tax deductions, such as the yearly mortgage interest deduction. You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. Higher limitations ($1 million or $500,000 if married filing separately) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017.

Frequently asked questions