Filing Taxes – Mortgage Insurance Premium Tax Deduction

Last updated 03/21/2024 by

The mortgage insurance premium tax deduction has been in tax law limbo for nearly a decade. The deduction was set to expire several times over, but each time, Congress extended it in time for tax season.

This tax season is no different. Congress officially extended the deduction for the 2018 tax season, so this year, you can still deduct your private mortgage insurance (PMI) from your taxes.

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What is the mortgage insurance premium tax deduction?

If you bought your home for less than 20% down, you likely paid for mortgage insurance, commonly known as private mortgage insurance or PMI. You’ll then pay these insurance fees for years, until you officially own 20% of your home.

Home buyers who took out these low down payment loans and had to pay mortgage insurance can deduct their insurance payments if they meet certain criteria. This criteria includes:

The homeowners paid their mortgage insurance on home acquisition debt for their first or second residence. (Mortgage acquisition debt is generally for those who took on debt to buy or build their home. Home equity loans don’t qualify).
The homeowner itemized on their tax deduction.

In addition, the deduction phases out as a qualifying taxpayer’s income approaches the gross income limit of $100,000 – $110,000, according to the IRS.

How much can the mortgage insurance tax deduction save you?

That depends on the value of your house, and on how much you’ve paid this year in mortgage insurance.

Essentially, this deduction lets you treat your mortgage insurance premiums as interest for tax purposes. As such, if you paid $8,000 in mortgage interest this year and paid $1000 in mortgage insurance premiums, you could report $9,000 in deductible mortgage interest for the tax year.

Should you deduct your mortgage insurance premiums?

For homeowners currently or recently paying mortgage insurance premiums, deducting them sounds like a no-brainer. However, there’s one snag which complicates the question. The mortgage interest deduction is an itemized deduction.

What is an itemized deduction? Itemized deductions are expenses that the IRS lets taxpayers tally up to decrease their taxable income. They include such expenses as medical expenses, charitable contributions, and home mortgage interest.

The standard deduction, on the other hand, is a fixed dollar amount that reduces taxable income, depending on your tax status. In 2018/19, a married couple filing taxes jointly can claim $24,000; a single taxpayer can claim $12,000.

If your standard deduction has a higher value than the sum of your itemized deductions, you should use that instead. In this instance, it will not make sense for you to deduct your mortgage insurance premiums.

But if your itemized deductions add up to a higher figure than $12,000 (or $24,000 if you’re filing jointly), then definitely deduct your mortgage insurance premiums!

How can you use this deduction?

Deducting your mortgage insurance premiums will take a little more work than simply taking the standard deduction. You’ll have to itemize your deductions, which means you’ll have to know exactly how many of your year’s expenses are tax deductible.

If you’re not a tax attorney, this prospect may sound daunting. Need guidance? SuperMoney can help. We’ve compiled pros, cons, and user reviews of the top tax preparation firms on the market. These trained experts can demystify the process, and get you every deduction that you deserve.

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