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Is PMI Tax Deductible? in 2024

We are explaining Is PMI Tax Deductible? If you don’t put down at least 20% of the purchase price on a traditional loan, you will often be assessed private mortgage insurance or PMI. In the unlikely event that you default on your house loan, it is intended to safeguard your lender. Your premium is typically paid every month and is deducted from your mortgage payment. Once it hits 80% of your loan-to-value ratio, you can have it removed.

However, in the interim, your PMI may be tax deductible for previous tax years provided you fulfil specific criteria. Let’s examine the PMI tax deduction’s operation and eligibility requirements.

In need of certainty regarding your tax preparation? Find a specialist at H&R Block to handle even the most complicated tax scenarios, and receive your maximum refund—or your whole amount of money back—guaranteed.

When is PMI tax deductible? Legislation timeline

The Tax Relief and Health Care Act of 2006 made PMI a category of mortgage interest. The deduction was extended to 2017 even though 2016 was the intended final year it could be claimed. Later, in 2019, laws were implemented to apply the deduction for payments made since 2017 retrospectively. 2020 saw the expansion of the tax deduction to include both 2020 and 2021. The regulations further said that it might be taken backwards in 2018 and 2019. Is PMI tax-deductible

Nevertheless, the PMI discount was not renewed for 2022, and people who pay mortgage insurance payments are not eligible for it at this time.

Restrictions on PMI tax deduction

The biggest restriction on the PMI tax deduction is the fact that it’s no longer available as of tax year 2022. However, if you qualify for past years, there are other restrictions. These include:

  • For you to benefit from mortgage interest deductions, including PMI, you need to have categorized your deductions.
  • The PMI paid on mortgages issued before January 1, 2007, could not be deducted; therefore, all mortgage contracts signed before that date were removed.
  • There was a phaseout at the end. The amount of the deduction would be lowered for individuals earning more than $100,000 ($50,000 for married individuals filing separately).

How much can you save in federal taxes?

Your tax bracket and the amount of mortgage insurance you pay will determine how much you would have saved with a PMI deduction.

Chase states that you should typically budget between 0.22% and 2.25% of your mortgage amount for PMI. One general guideline is to figure out that for every $100,000 you finance, you’ll probably have to pay $50 a month. Is PMI tax-deductible

Suppose you finance $300,000 of a $320,000 property with a $20,000 down payment. The average monthly price for mortgage insurance is going to be $150. That comes to $1,800 annually. Assume that you are a married couple filing jointly with an annual income of $90,000, which will place you in the 22% tax bracket in 2021. If you itemized in that scenario, your deduction would have reduced your federal taxes by $1,800 x 22%, or $396, in 2021.

Example calculation

The mortgage term or the smaller of 84 months is used to divide up the mortgage premiums. In an alternative scenario, let’s suppose that the total PMI premiums you pay for a 15-year mortgage starting in July of the tax year would come to $10,320. (Remember that you can get PMI eliminated whenever your loan-to-value ratio reaches 80%. This computation is predicated on PMI ceasing before the conclusion of the 15-mortgage term.)

Additionally, since 84 months is less than 15 years, assume that the entire PMI will be spread out over that period. Additionally, keep in mind that you were only required to pay PMI for six months of the first year you held the mortgage. Is PMI tax-deductible

The following formula would be used to calculate your deduction for that year: ($10,320 / 84) x 6 = $737. Using the allocation assumption, the monthly amount is equal to 84 and the total amount of PMI applied to the mortgage is $10,320. A monthly premium of around $122.86 would be yours. You may only deduct for the last six months of the year because you purchased the house in the middle of the year. It would be $122.86 x 6 months, or $737, as your total deduction.

It’s important to remember that a tax deduction is not a dollar-for-dollar reduction in your tax bill. Your tax savings are different from your deductions. Assuming a 22% tax bracket, the potential estimated tax savings on a deduction of $737 would be $162.14. PMI Tax Deductible

Income phaseouts for PMI deductibility

According to H&R Block’s mortgage insurance premium deduction, the most recent  income phaseouts for PMI deductibility were:

  • $100,000 is the adjusted gross income (AGI) for single individuals filing separately. Up to a total phaseout for AGI over $109,000, the deduction is lowered by 10% for every $1,000 beyond this level.
  • $50,00 AGI for married individuals filing separately. The deduction amount is lowered by 10% for every $500 beyond that limit, up to the point when the total income phaseout exceeds $54,500 AGI.

Should I claim a PMI deduction for past years?

If you are still doing your taxes, you may be able to claim a PMI deduction for previous years. You can file an updated return for the years you weren’t qualified to get PMI if you didn’t in the past.

The amount of money you would truly save will determine if doing this makes sense. Think about the time and effort involved and if the benefits would outweigh the costs. Is PMI tax-deductible

Origins of Mortgage Insurance Tax Deduction

Lawmakers introduced the mortgage insurance tax deduction in 2006, and it became effective for policies issued in 2007 and later. The intention was to include PMI as a kind of mortgage interest to offer some additional tax relief. In the years that followed, the mortgage insurance tax deduction was expanded more than once. But in the end, it ran out by the end of 2021. Unless Congress takes further action and makes the deduction retroactive, mortgage insurance payments paid in 2022 are not tax deductible. Is PMI tax-deductible

Durbeen Media: PMI tax deductions ended, but retroactive claims may be possible

For homeowners who qualified and itemized their deductions, PMI was tax deductible for just over ten years. The PMI deduction has expired, therefore beginning of the 2022 tax year, deductions for new mortgage insurance payments are no longer available. However, in some cases, you can use an amended tax return to claim it backwards for specific years. Is PMI tax-deductible

Frequently Asked Questions (FAQs) 

How can I cancel my PMI?

When you get to the point when it’s expected that you’ll have an 80% loan-to-value ratio on your house, you can ask to have your PMI cancelled. The PMI disclosure form that was given to you when you applied for a mortgage should have this date on it. Your request needs to be made in writing. As long as you remain current on your payments, your PMI will automatically be terminated if you don’t make the request whenever your home’s loan-to-value ratio is expected to hit 78%.

Is PMI on an FHA loan tax deductible?

No. It used to be tax deductible, but currently, it is not. It will require an act of Congress to change this.

Can PMI be removed if home value increases?

Yes, if the value of your house has grown, you can get your PMI erased. To be sure that your equity is more than 20% based on the increased worth of your house, you must, however, collaborate with your lender and get an assessment.

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