Homebuyers who don't put at least 20 percent down when they purchase a residence usually have to buy private mortgage insurance, or PMI, on that home loan. PMI is a policy that, as a homebuyer, you pay for, but it protects your lender in case you default.

In this tax tip: • Making your PMI claim   • Time and residence restrictions   • PMI refinancing rules   • Income phaseouts

For most, such insurance is simply part of the price of owning a home.

But some homeowners who purchased their primary residences or second homes in 2008 can claim a tax deduction on PMI premiums.

The new tax break was tucked into the Tax Relief and Health Care Act of 2006 and originally applied to policies on home loans taken out in 2007. Almost exactly a year later, PMI-paying homeowners got more good news. At the end of 2007, the PMI deduction was extended to certain premiums paid in 2008 through 2010.

Making your PMI claim
The new tax deduction can be taken for policies issued by private insurers as well as insurance provided by the Federal Housing Administration, the Department of Veterans Affairs and the Rural Housing Administration.

Claiming the deduction is easy. Most homeowners are already familiar with Schedule A, the form on which itemized expenses are claimed. The second section of that form, titled "Interest You Paid," is where mortgage interest and loan points are claimed.

That's now where you'll report your PMI payments. The IRS has simply added another line, No. 13 on the 2008 Schedule A, for qualifying mortgage insurance premiums.

Your lender also helps out when it comes to reporting PMI amounts. In box 4 of your Form 1098 (or the substitute year-end loan information statement your lender uses), you'll find the amount of PMI premiums you paid last year as part of your home payments.

Time and residence restrictions
While claiming the new PMI deduction is easy, there are some limits.

First, there's the deduction time frame. It's restricted to a few years. This tax-filing season, you can claim a deduction for PMI premiums only if you took out the mortgage on which you pay PMI on or after Jan. 1, 2007. If your home loan was issued before that date, none of your PMI payments are deductible.

If you get a new mortgage in this year or through 2010, any associated PMI premiums on that loan will be deductible in those tax years, or later if Congress extends the law beyond its current effective dates.

What about that second-home loan on which you pay PMI premiums? You might be able to deduct those, too, as long as you meet the requirements. Again, the loan on the second home must have been issued in 2007 or later to be deductible. Also, the second property must be for your personal use as a second or vacation residence. If you rent it out, then you're stuck paying the PMI without any help from the IRS.

PMI refinancing rules
PMI on loans refinanced in 2008 might be deductible, but only up to the property's acquisition loan amount.

For example, you bought a house five years ago for $150,000 using an 80-20 piggyback loan arrangement of $120,000 and $15,000. Your home acquisition amount is $135,000.

In 2008, you refinanced the property, taking out a $140,000 loan that included a PMI policy. You can only deduct the PMI premiums for the loan amount up to $135,000, the amount of the mortgage when you acquired the home, not on the full new loan of $140,000.

Income phaseouts
Finally, while there is no limit on the amount of PMI premiums you can deduct, the amount might be reduced based on your income.

When adjusted gross income, or AGI (the amount shown on line 38 of Form 1040), hits more than $100,000 for single, head of household or married filing jointly taxpayers, or $50,000 for a married persons filing separate returns, the PMI deduction begins phasing out.

The deduction is reduced by 10 percent for each $1,000 over the AGI limit and disappears completely for most homeowners whose AGI is $109,000 or $54,500 for married filing separately taxpayers.

The Schedule A instructions include a worksheet, as does most tax preparation software, that affected homeowners can use to determine their reduced PMI deduction amount.

Freelance writer Kay Bell writes Bankrate's tax stories from her Austin, Texas, home. She also writes two tax blogs, Eye on the IRS for Bankrate and Don't Mess With Taxes, and is the author of the book "The Truth About Paying Fewer Taxes."