Deducting PMI premiums can save you hundreds of dollars. Hereâ€™s what you need to know to get the deduction.
Do You Qualify for the Deduction?
Just because you have PMI premiums doesnâ€™t mean you can deduct them. Hereâ€™s what qualifies you:
How to File for the PMI Deduction
Youâ€™ll have to itemize and use Schedule A.
If you make no more than $100,000 a year, put the amount of insurance premiums you paid last year on Line 13. Donâ€™t include pre-paid premiums for this year. Youâ€™re doing taxes based on last yearâ€™s income and expenses, so this yearâ€™s premiums donâ€™t count even if you pre-paid them last year. (More about deducting prepaid and upfront mortgage insurance here.)
If your adjusted gross income is between $100,000 and $109,000, use
the worksheet included with Schedule A to figure out how much you get to
How Much Can You Save?
It depends on how much youâ€™re paying. A good rule of thumb industry experts use: You'll pay $50 a month in premiums for every $100,000 of financing. Keep in mind, though, that the amount of the down payment, type of loan, and lender requirements can all affect your actual cost.
For example, if you put 5% down on a $200,000 house, youâ€™ll pay monthly PMI premiums of about $125. Increase your down payment to 10%, and youâ€™ll pay less than $80 a month.
So how does this affect your tax bill? Letâ€™s say your adjusted gross
income is $100,000. You bought a $200,000 house in 2012, put down 5%,
and paid $1,500 in PMI premiums ($125 times 12 months). The deduction
for PMI cuts your taxable income by $1,500. If youâ€™re in the 15% tax
bracket, you save $225 on your tax bill ($1,500 x 15%), and if you are
in the 25% tax bracket, you save $375 ($1,500 x 25%).
The Best Savings of All: Canceling Your PMI
Although the tax deduction is nice â€” at least while it lasts â€” getting rid of PMI altogether is even nicer.
You can cancel your PMI when you have 20% equity in your home. Lenders are required to automatically cancel it once you have 22% equity. If you think youâ€™re at that threshold, find out more about canceling your PMI.
Get more tax tips with our complete Home Ownerâ€™s Guide to Taxes.
This article provides general information about tax laws and consequences, but shouldnâ€™t be relied on as tax or legal advice applicable to particular transactions or circumstances. Consult a tax pro for such advice; tax laws may vary by jurisdiction.