man looking at taxes - Is PMI tax deductible

For the time being, homeowners who pay private mortgage insurance can use it as an itemized deduction on their taxes.

Homeownership can be filled with financial woes, like repairing that leaky roof, replacing a struggling refrigerator, and sinking money into HOA fees month after month. But one potential joyous moment in homeownership happens each spring, when you settle up with the Internal Revenue Service and realize that you can generate tax deductions out of those monthly mortgage payments on your Phoenix, AZ, real estate. At least through the 2016 tax year, one deduction not to overlook is the private mortgage insurance (PMI) that you may pay.

PMI is an additional fee on top of your home loan’s principal and interest, escrow, and taxes; it’s required on a conventional home loan if you put down less than 20% of the loan amount. Since it has been shown that homebuyers who put down less than that amount are more likely to go into default, you pay PMI to protect the mortgage company should you default on your loan. PMI also is required if you’re refinancing with a conventional loan and your equity is less than 20% of your home’s value.

Taxpayers haven’t always been able to deduct PMI from their federal taxes, but that changed with enactment of the Tax Relief and Health Care Act of 2006. Because the housing market has continued to recover slowly, lawmakers have extended the tax break since then, most recently in 2015, when they extended the PMI deduction to insurance premiums paid through 2016.

Being forced to make up for a low down payment with monthly PMI payments isn’t generally considered ideal — PMI can cost from $50 to several hundred dollars a month and doesn’t lower your balance. But many homeowners, for the time being, can use their PMI expense as a tax write-off. (It’s a small silver lining.)

So how is PMI tax-deductible, and how do you file? You can qualify for a portion of the PMI deduction if your loan was established in 2007 or later, the home is your primary residence, and your adjusted gross income (AGI) isn’t above $109,000. If your AGI is under $100,000 (married filing jointly), you could qualify for the full deduction.

To deduct PMI from your taxes, see line 13 of Schedule A (Form 1040), which is the form that taxpayers use when itemizing deductions, and its instructions. The amount you are allowed to deduct should be located in box 4 of the 1098 Mortgage Interest Statement given to you by your lender.

Have you used private mortgage insurance as an itemized deduction on your taxes? Share in the comments!