Important update: As of 2022, the mortgage insurance premium deduction is no longer available. This means you cannot deduct mortgage insurance payments made on any mortgages, including FHA loans, on your tax return.
- Previous deductions: If you paid PMI in 2021 or earlier, you may still be able to claim the deduction on your tax return. For information on claiming the deduction for past years, please refer to IRS Publication 936: Home Mortgage Interest Deduction.
- No future changes guaranteed: There is no guarantee that the PMI deduction will be reinstated in the future. It would require an act of Congress to change the current law. Therefore, it’s important to be aware of the current tax code and plan accordingly.
Disclaimer: This blog post was originally written in 2021, when the deduction was still available. While the information on mortgage insurance in general remains relevant, please note that the tax code has changed since then.
As tax season rolls around for 2021, you may be wondering what your options are to find deductions that can help you with your refund. If you are a homeowner, one option you may try to consider is if your mortgage insurance is deductible for your taxes. While the tax deduction for private mortgage insurance (PMI) was removed in 2017, it is officially back and is something that can help when filing your taxes as it is deductible.
It is vital to recognize how you can include your PMI as part of your deductions. After all, you are most often required to have this type of insurance when you are a borrower who made a down payment of less than 20% of the home’s value. We’ve discussed the best ways to remove PM from your mortgage without refinancing but for those of my readers who still have this insurance as part of their loan payment, here is everything you need to know about deducting your mortgage insurance as part of your taxes.
What the Laws Say About PMI Deductibles
As of December 2019, all eligible owners can deduct their private mortgage insurance. This means that in 2020 and beyond, homeowners can include the amount they pay in mortgage insurance as a deduction on their taxes. Even more, it allowed taxpayers to retroactively adjust their 2018 and 2019 taxes to amend their returns and include the PMI deductible. Before you make the decision to include your mortgage insurance with your deductions, you should first weigh your options and determine if it makes sense for you.
Here are some of the things you should know:
- Does it make sense to deduct your private mortgage insurance? You would only include your mortgage insurance if you are itemizing your deductions.
- Would your mortgage insurance payments be more than the standard deductions? Standard deductibles cover a specific amount, but if your mortgage insurance payments don’t top that amount, it makes more sense to take the standard deduction.
- Is there a better option for your private mortgage insurance? If you can, it may make more sense to try and remove your PMI instead of deducting it. If you reach a specific threshold on the equity of your home, you may have the PMI removed from your payments.
- Do you have FHA mortgage premium insurance? PMI on FHA loans does not exist so be sure to check what type of loan you have.
Income Impact on PMI Deductibles
One of the biggest factors that can impact your ability to deduct your private mortgage insurance payments is your income. If your adjusted gross income is above a specific amount, the ability to deduct your mortgage insurance diminishes.
These are the AGI limits to consider:
- $100,000 for single, head of household, and married filing jointly filers
- $50,000 for married filers who are filing separate returns
For every $1,000 that your income exceeds these limits, your private mortgage insurance deductible reduces by 10%. Once your adjusted gross income hits $109,000 or $54,500, you can no longer deduct your private mortgage insurance.
Another limit that can impact your ability to include your private mortgage insurance in your deductions is the timeline of the law. You can only include a PMI deduction if you paid your premium on a contract issued after December 31, 2006. If the mortgage agreement is relatively new, you should be good to include PMI payments as part of your deductible. If your mortgage is older than that, it can impact your ability to do so.
Before you move forward, it is crucial to determine what option works best. As a homeowner, it is important to recognize where to save the most money. This means determining if it is best to file with a standardized deduction or itemized deduction, or removing the PMI completely.