Jane Dotson
The deductibility of Private Mortgage Insurance (PMI) premiums has been inconsistent over the years, with tax deductibility coming and going at the discretion of Congress. The Further Consolidated Appropriations Act of 2020 allowed PMI and Mortgage Insurance Premium (MIP) tax deductions for tax years 2018 through 2021, but this deduction expired at the end of 2021. The deduction was applicable on line 8d of Schedule A (Form 1040) for amounts paid or accrued. The IRS provides guidelines on how to determine if homeowners can deduct mortgage-related expenses, including mortgage interest, points, and mortgage insurance premiums, using Form 1098. Homeowners must itemize deductions on Schedule A (Form 1040) and meet specific conditions, such as loan type and mortgage balance, to qualify for deductions.
| Characteristics | Values |
|---|---|
| Tax deductibility for mortgage insurance premiums and PMI costs | Comes and goes according to the whims of Congress |
| Tax years when PMI was deductible | 2018, 2019, 2020, 2021 |
| Tax year when PMI is not deductible | 2022, 2024 |
| Form to fill for tax deduction | Schedule A (Form 1040) |
| Line number on Schedule A (Form 1040) | Line 8d |
| Amount of mortgage insurance premiums | Mentioned in Form 1098 |
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What You'll Learn
Tax deductibility for mortgage insurance premiums
The deductibility of private mortgage insurance (PMI) premiums has been inconsistent over the years, with the decision being made by Congress. The last time PMI premiums were deductible was for tax year 2021. The deduction was included in the Further Consolidated Appropriations Act of 2020, which allowed PMI tax deductions for 2020 and 2021, and retroactively for 2018 and 2019 if taxpayers filed amended returns. However, the deduction expired at the end of 2021 and is not available for the tax year 2022 and beyond unless extended by Congress.
The itemized deduction for mortgage insurance premiums was a part of the Tax Relief and Health Care Act of 2006. It was initially available for mortgages that originated in 2007 and beyond. Over the years, there have been several moves to extend or reinstate this deduction. In 2015, the Protecting Americans from Tax Hikes (PATH) Act extended the deduction for one year, covering the tax year 2015. In 2017, the Bipartisan Budget Act of 2018 retroactively extended the deduction for 2017. In 2019, California Representative Julia Brownley introduced the Mortgage Insurance Tax Deduction Act of 2019, which aimed to make the mortgage insurance deduction a permanent part of the tax code.
To claim the deduction, taxpayers could use line 8d of Schedule A (Form 1040) for amounts paid or accrued. The amount of mortgage insurance premiums paid can be found on Form 1098, which is provided by the lender or servicer. It is listed separately from the mortgage interest paid. It is important to note that the deduction was not allowed for taxpayers with an AGI over $109,000 or $54,500 for married couples filing separately in 2021.
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Private mortgage insurance (PMI)
The deductibility of PMI premiums has been inconsistent over the years, depending on the decisions made by Congress. For example, it was deductible in tax year 2021 but not in tax years 2023 and 2024. If it is deductible, the amount paid for PMI can be found on Form 1098, provided by the lender or servicer, in box 5, separate from the mortgage interest paid. This amount can then be deducted as part of the mortgage interest deduction on Schedule A (Form 1040). However, it is important to note that PMI premiums are not always deductible, and homeowners should check the relevant tax laws for the specific year they are filing their taxes.
Homeowners who have sufficient mortgage interest and other qualified expenses that exceed the standard deductions may need to itemize these expenses on Schedule A (Form 1040). Additionally, if a homeowner has been in their current mortgage for more than two years and is still paying PMI costs, they may consider contacting their servicer to discuss the possibility of cancelling their PMI policy, which would eliminate the need to consider its tax deductibility.
PMI can be avoided by making a 20% down payment on a conventional loan. However, for those who cannot afford this, PMI provides an opportunity to qualify for a loan and enter the housing market. While it increases the cost of the loan, it allows buyers to secure a loan that they might not have been able to obtain otherwise.
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Mortgage insurance premiums (MIP)
Mortgage Insurance Premium (MIP) is a type of insurance applied to mortgage loans insured by the Federal Housing Administration (FHA). It is required of homeowners who take out loans backed by the FHA. FHA-approved lenders provide lower down payment requirements and more flexible credit qualifying requirements compared to conventional loans. This makes FHA loans popular options for homebuyers who may not have the financial means to make large down payments or meet high credit requirements for a conventional mortgage.
MIP is paid by homeowners who take out FHA-backed loans. These lenders use MIPs to protect themselves against higher-risk borrowers who are more likely to default on loans. Since FHA loans come with a down payment as low as 3.5% and a credit score as low as 580, default is a key concern. MIP is essentially a type of insurance that protects the lender if the borrower defaults on the FHA loan.
There are two types of MIP: Upfront MIP and annual MIP. The upfront MIP is a percentage of the base loan amount and can be paid as a lump sum at the closing of the loan or financed into the total loan balance and paid for as part of your monthly payments. The upfront mortgage insurance premium for FHA loans is 1.75% of the total loan amount. The annual MIP is paid on a monthly basis and is calculated based on the loan amount, the loan-to-value ratio, and the loan term. It can vary depending on these factors.
The tax deductibility of MIP has varied over the years, depending on legislation. The Further Consolidated Appropriations Act of 2020 allowed tax deductions for MIP and private mortgage insurance (PMI) for 2020 and retroactively for 2018 and 2019. However, the Act expired, and mortgage insurance premiums are no longer deductible as of 2024. The last time MIP premiums were deductible was for the tax year 2021.
To determine if you can deduct MIP on your taxes, you should consult a qualified tax professional. They can help you understand the current legislation and your individual eligibility. Additionally, you should receive Form 1098, the Mortgage Interest Statement, from your lender, which lists your mortgage payments, including MIP premiums, for the past year. This form is also sent to the Internal Revenue Service (IRS).
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Deductibility of PMI premiums
The deductibility of Private Mortgage Insurance (PMI) premiums has been an inconsistent affair, with tax deductibility coming and going according to the whims of Congress. The last time PMI or Mortgage Insurance Premiums (MIP) for FHA-backed loans were deductible was for the tax year 2021. However, this may change in the future. The deduction was part of the Further Consolidated Appropriations Act of 2020, which allowed PMI tax deductions for 2020 and 2021 and retroactively for 2018 and 2019 if taxpayers filed amended returns.
The savings from the PMI deduction depended on your tax bracket and how much you paid in premiums. Homeowners paid around $50 per month in PMI premiums on average for every $100,000 of financing when the deduction was available. For example, if you paid $1,500 in PMI premiums for the year, you could have saved between $180 and $330, depending on your tax bracket.
To be eligible for the PMI deduction, you needed to meet specific criteria. Firstly, you must have paid or accrued premiums on a qualified mortgage insurance contract issued after December 31, 2006. Secondly, the mortgage must be acquisition debt for a qualified residence, meaning it is a new mortgage. Finally, you must itemize your deductions. It is important to note that the mortgage insurance premium deduction is reduced by 10% for every $1,000 your adjusted gross income (AGI) exceeds certain thresholds.
The mortgage insurance premium deduction is only available through tax year 2020. Starting in 2021, the deduction is no longer available unless extended by Congress. Therefore, for the tax year 2024, homeowners cannot deduct PMI premiums. However, if you have been in your current mortgage for more than two years and are still paying PMI costs, you may consider contacting your servicer to discuss cancelling your PMI policy. Strong property price appreciation and a solid payment history may put your loan-to-value ratio below the 80% LTV threshold typically required to cancel PMI.
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Itemizing deductions on Schedule A (Form 1040)
Schedule A (Form 1040 or 1040-SR) is an Internal Revenue Service (IRS) form for US taxpayers who choose to itemize their tax-deductible expenses rather than take the standard deduction. Schedule A is an attachment to Form 1040 that taxpayers use to report their annual income taxes. It is a one-page tax form divided into six parts, corresponding to the six major categories of itemized deductions that people report on their tax returns.
Schedule A is the tax form used by taxpayers who itemize their deductible expenses rather than take the standard deduction. A taxpayer with significant eligible expenses that exceed the standard deduction will file a Schedule A. Eligible expenses include qualified medical costs, some state and local taxes, and some charitable contributions.
The standard deduction is the amount that all taxpayers are entitled to deduct from their taxable income and it varies depending on the individual's filing status and income level. If a taxpayer's itemized deductions total more than the standard deduction, itemizing their deductions will generally save them tax money. Working with a tax professional can help determine eligibility for each tax deduction and whether the itemized or standard deduction is more suitable.
Homeowners with sufficient mortgage interest and other qualified expenses to exceed the standard deductions will need to itemize these expenses on Schedule A. Through tax year 2020, private mortgage insurance (PMI) premiums are deductible as part of the mortgage interest deduction. However, the deductibility of PMI premiums has been inconsistent, and it is "off" again for tax year 2024. The tax deduction for PMI premiums is not part of the tax code but has generally been authorized by Congress as parts of other bills.
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Frequently asked questions
Private mortgage insurance (PMI) and mortgage insurance premiums (MIP) are often required for homebuyers who put down less than 20% on their homes. The tax deductibility of PMI premiums has been inconsistent over the years, and it is currently “off” for the tax year 2024.
The last time PMI or MIP premiums were deductible was for the tax year 2021.
You can find the amount of mortgage insurance premiums you paid on Form 1098, which your lender or servicer sends to you annually.
If you are claiming itemized deductions, you can claim the PMI deduction for eligible years on Schedule A (Form 1040).
