Did you purchase your home with a down payment less than 20%? If so, you are more than likely paying monthly premiums towards your Private Mortgage Insurance (PMI).
PMI is insurance which protects the lender in the event you default on the home loan. That’s a good deal for the lender, considering you’re the one paying the PMI premiums. The good news for you is that you can qualify for PMI tax deduction when filing your taxes. Most lenders will send you an end of year statement around tax time so that you have record of interest and PMI payments for that year. The information on that statement will be helpful in filing for the deduction.
Getting the PMI tax deduction
Starting with loans issued or refinanced in 2007, and continuing through 2013, you can deduct each year’s premiums paid on PMI for your principal residence and for a non-rental second home. The tax break was originally good for 2007 only, but the government keeps extending it.
The deduction begins to phase out once your adjusted gross income reaches $100,000 ($50,000 for married filing separately) and disappears entirely at an AGI of $109,000 ($54,500 for married filing separately).
In general, you can only deduct the premiums paid for the current tax year. If you pre-paid premiums for future years, that portion must be allocated to those future years. Rules can vary for mortgage insurance provided by the Federal Housing Administration, Department of Veterans Affairs, and Rural Housing Service, so consult a tax adviser.
To claim the PMI deduction, you must itemize you return. Enter qualified PMI premiums on Line 13 of Schedule A. The IRS instructions for Schedule A include a worksheet for home owners subject to the income phase-out. Basically, you’ll lose 10% of the deduction for each $1,000 over the $100,000 AGI limit you are.
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