Alyssa Lane
Private mortgage insurance (PMI) is a type of insurance that is required by lenders when homebuyers make a down payment of less than 20% of the total home price. It protects the lender in case the borrower defaults on the loan. While PMI is not necessary if you put a down payment of 20% or more, it can be difficult for many homebuyers to reach this threshold. As a result, many homeowners opt for PMI, which has been tax-deductible on and off over the years. The most recent period during which PMI was deductible was from 2018 to 2021. However, as of 2022, the deduction for PMI has expired, and it is no longer available for homeowners to write off their premiums.
| Characteristics | Values |
|---|---|
| Is private mortgage insurance a tax write-off? | No, the deduction expired at the end of 2021. |
| When was the deduction available? | 2018-2021 tax years |
| Who is required to pay private mortgage insurance? | Homebuyers who put down less than 20% of the home's purchase price |
| How to stop paying private mortgage insurance? | Request the lender to remove it when you've reached 20% equity |
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What You'll Learn
Private mortgage insurance (PMI) has been tax-deductible in the past
The Tax Relief and Health Care Act of 2006 introduced the deduction for mortgage insurance premiums. Since then, Congress has made several moves to extend or reinstate this deduction. For example, in 2015, the Protecting Americans from Tax Hikes (PATH) Act extended the deduction for the 2015 tax year. In 2017, the Bipartisan Budget Act of 2018 retroactively extended the deduction for the 2017 tax year.
In 2019, Congress reintroduced a federal tax deduction that allowed homeowners paying PMI to write off the premiums for the 2018, 2019, 2020, and 2021 tax years. This deduction expired at the end of 2021, and as of 2025, PMI is not tax-deductible. However, it's important to note that the legislation surrounding this deduction has evolved over time, and Congress has made efforts to extend or reinstate it.
When the PMI deduction was last available for the 2021 tax year, there were certain limitations and eligibility criteria. For example, the PMI policy's mortgage had to be originated after 2006, and the deduction was reduced or eliminated for higher income earners. Additionally, the PMI deduction was considered an itemized deduction, which means it would only impact the tax return if the itemized deductions surpassed the standard deduction.
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The PMI deduction expired after the 2021 tax year
The Private Mortgage Insurance (PMI) deduction has expired and is no longer available for homeowners. The deduction was applicable for tax years 2018–2021, but it expired at the end of 2021. This means that homeowners could write off the premiums for those years if they itemized their deductions. However, this deduction is no longer valid for tax year 2022 and beyond.
The PMI deduction has been an on-again, off-again affair for years, with Congress extending or reinstating it through various pieces of legislation. For example, the Further Consolidated Appropriations Act of 2020 allowed for PMI deductions for tax years 2018 through 2021. Similarly, the Tax Relief and Health Care Act of 2006 introduced the deduction for mortgage insurance premiums, and Congress has made several moves to extend or reinstate this deduction since then.
While the PMI deduction is no longer available, homeowners may still be able to leverage other tax deductions, such as the mortgage interest they pay yearly, which is still tax-deductible within certain parameters. State and local real estate taxes may also be deductible, depending on the area. Additionally, homeowners can request to have PMI removed from their mortgage payments once they have reached 20% equity in their homes, which can save them money in the long run.
It's important to note that the PMI deduction was only available to eligible homeowners who had a mortgage insurance contract issued after December 31, 2006, and whose mortgage was acquisition debt for a qualified residence. The deduction was also reduced once the Adjusted Gross Income (AGI) exceeded certain thresholds and was completely eliminated for higher incomes.
Homeowners who believe they may be eligible for the PMI deduction for tax years 2018–2021 can refer to Form 1098, which shows the amount of premiums paid during that time. They may also need to file an amended tax return to claim the deduction retroactively.
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Homeowners may leverage other tax deductions
Private mortgage insurance (PMI) is no longer tax-deductible as of 2022. However, homeowners can still take advantage of various tax deductions to reduce their overall tax burden. Here are some strategies that homeowners may leverage:
Mortgage Interest Deduction
Homeowners can deduct the mortgage interest they pay annually from their taxable income. This deduction applies to both primary residences and second homes, with specific limits depending on marital status and filing status. For married couples filing jointly, single filers, and heads of households, the deduction amount is $750,000. On the other hand, married individuals filing separately can deduct up to $375,000 each.
Property Tax Deduction
State and local property taxes paid on homes are deductible when filing federal income taxes. This includes both the annual property tax based on the home's assessed value and any taxes paid during the closing process.
Home Office Deduction
If you run a business from your home, you may be eligible to claim the IRS's home office deduction. This deduction allows you to deduct a portion of your home-related expenses, such as rent or mortgage interest, utilities, insurance, and repairs, from your taxable income.
Mortgage Points
Mortgage points are optional fees paid to the lender when purchasing a home to lower the interest rate. These points can be considered "prepaid interest" and may result in significant cost savings over the life of the mortgage. By reducing your interest rate, you can lower your monthly payments and the total interest paid over time.
Homeowner Assistance Fund (HAF)
The Homeowner Assistance Fund program provides financial assistance to eligible homeowners facing financial hardships. This assistance is not considered taxable income, and it helps prevent mortgage delinquencies, defaults, foreclosures, and loss of essential home services.
While private mortgage insurance itself is not currently deductible, homeowners have a variety of other tax deductions available to them. It is important to stay informed about the latest tax laws and consult a tax professional to maximize your tax benefits as a homeowner.
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PMI is required by lenders for down payments of less than 20%
Private mortgage insurance (PMI) is a type of insurance that is required by most lenders when homebuyers make a down payment of less than 20% of the home's value. PMI protects the lender in the event that the borrower defaults on the loan. It is important to note that PMI does not protect the homebuyer; if they fall behind on mortgage payments, they can still lose their home through foreclosure.
Lenders typically require homebuyers to maintain a PMI contract until the loan-to-value ratio is reduced to 80%, which usually means building enough home equity to reach the 20% threshold. Homebuyers can request that the lender remove PMI from their mortgage payments once they have reached this level of equity. In some cases, lenders may require a formal appraisal of the home or a letter requesting the cancellation of PMI.
There are several strategies that homebuyers can use to avoid paying PMI. One option is to use gift money to reach the 20% down payment threshold. Lenders typically allow gift money from immediate family members, provided that it is truly a gift and not a loan. Another option is to obtain a piggyback loan, which involves taking out a second mortgage on the home. This allows the homebuyer to effectively make a 20% down payment and avoid PMI. Certain lenders and banks may also offer low down payment mortgages with no PMI, especially for first-time homebuyers or lower-income buyers.
While PMI can provide protection for the lender, it is an added cost for homebuyers, typically ranging from 0.5% to 1% of the entire loan amount annually. This can amount to a significant expense over the life of the mortgage. Therefore, it is beneficial for homebuyers to understand how to avoid PMI or work towards building enough equity to cancel it.
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PMI can be cancelled when you have 20% equity in your home
Private mortgage insurance (PMI) is a type of insurance that lenders require from homebuyers who put down less than 20% of the home's purchase price. It protects the lender if the borrower defaults on the loan. While it can be worth paying PMI as an extra monthly charge to buy a home before you can afford a 20% down payment, it can add tens of thousands of dollars in housing costs over the life of a loan.
PMI usually costs between 0.2% and 2% of the yearly loan amount, though it can be higher or lower depending on your loan-to-value ratio (LTV). LTV expresses the amount of your mortgage's principal balance compared to the purchase price of the home. Lenders use this figure to measure the loan's risk, including when a borrower is eligible to cancel PMI.
You can request that your PMI be cancelled when you have reached 20% equity in your home. This applies to BPMI, whereas LPMI cannot be removed without refinancing. To estimate when you will reach the 20% equity threshold, you can make payments on time per your amortization schedule for loan repayment. You may also reach the benchmark faster by making extra or larger payments on your mortgage than required, or by investing in home improvements. If you have room in your budget, paying extra towards your principal can help you reach 20% equity faster.
If you have owned your home for at least five years and your loan balance is no more than 80% of the valuation, you can ask for PMI cancellation. If you have owned the home for at least two years, your remaining mortgage balance must be no greater than 75%.
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Frequently asked questions
No, the deduction for private mortgage insurance expired after the 2021 tax year.
Private mortgage insurance was deductible for tax years 2018, 2019, 2020 and 2021.
Private mortgage insurance is not necessary if you buy a house and put a down payment of 20% or more. You can request that your private mortgage insurance be cancelled when you have 20% equity in your home.
You can find the amount of mortgage insurance premiums you paid on Form 1098 that your lender or servicer sends to you each year.
