John Brooks, Member
@jwbrooks
Many homebuyers like to take advantage of deductions that are offered by the I.R.S. and PMI was no exception from the years 2007 until 2013. PMI, private mortgage insurance, is often required by the banks to protect them against a default on the loan. The homebuyer is required to pay for this and should in all fairness be able to use it as a deduction on their taxes. This deduction could be discovered in the I.R.S. Schedule A documentation under interest payments.
There are some restrictions for the full deduction involved, including an AGI of less than 100,000 dollars for all taxpayers outside of married filing separately. In that case, the cutoff was 50,000 dollars on the full deduction. The deduction decreased a staggering ten percent for every 1,000 dollars that was above the AGI’s listed above. The deductions were allowable to anyone who purchased or refinanced a home between 2007 and 2013.
At the time of this writing, the PMI deduction has not yet been extended for the 2014 tax year. This means that you will not be able to claim PMI insurance on your 2014 tax returns unless Congress steps in and extends it though this year or passes a new bill that includes the deduction.
This has a huge impact on many homebuyers and was only one of many deductions that expired at the end of 2013 for homeowners. If you are paying PMI insurance you can talk to your mortgage company and see if it can be dropped or even if refinancing would be an option to offset the loss of this deduction by lowering your overall costs.
Ross Garner, WalletHub Community Manager
@RossGarner
For tax years 2007-2011, your private mortgage insurance premiums are tax deductible. Originally this tax break was enacted during the Great Recession to make purchasing a home more attractive, and was later extended through 2011. However, it has not yet been extended through 2012, and there is no way to know whether that will happen or not.
There are several restrictions on who can claim a mortgage insurance deduction. To be eligible, your mortgage must have started on or after January 1st, 2007. Any mortgages started earlier than that date are not eligible for tax deduction. If your original mortgage started before that date, but you have since refinanced you might be eligible if the new loan amount is equal to or less than your original loan amount.
Even if you are eligible for a PMI tax deduction, there are still income restrictions that could limit your deduction. If your filing status is single or married filing jointly and your AGI is more than $100k, or if your AGI is more than $50k when married filing separately your return will be subject to phase outs. For every $1000 you make above your limit, there is a 10% reduction on your PMI deduction. The tax break will be almost completely gone for home owners making more than $109,000 or $54500 respectively.
Claiming the reduction is easy. Your lender will send over a 1098 form that will include the amount of mortgage insurance you paid during the year. If you are eligible for the reduction then you can include the amount you paid your Schedule A under interest paid.
Did we answer your question?