It’s your last chance to deduct private mortgage insurance
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You can deduct private mortgage insurance paid during the 2016 tax year, but this will likely be the last time.
Homebuyers unable to make a down payment of at least 20 percent of their home’s purchase price are required to buy the insurance, also known as PMI. It protects your lender in case you default on your loan.
PMI premiums have been deductible since 2007, but the tax break has expired. For future tax years, Congress must renew it.
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How to claim it
The deduction can be taken for private mortgage insurance policies issued by private insurers, as well as for insurance provided by the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture’s Rural Housing Service.
You must itemize deductions to get the write-off. It appears in the “Interest You Paid” section of Schedule A.
What amount of PMI do you claim? You should find the amount in box 4 of the Form 1098 (or the substitute year-end loan information statement) that your lender sent you.
Time, occupancy restrictions
While it’s easy to take the PMI deduction, make sure you meet the requirements.
The deduction is allowed only if the mortgage on which you pay PMI was taken out on or after Jan. 1, 2007.
If you refinanced your home since that time, you qualify for the PMI deduction on that loan. However, the mortgage insurance deduction applies to refinances up to the original loan amount, not to any extra cash you might have received with the new home loan.
Are you thinking about a cash-out refi? Compare mortgage rates at Bankrate.
You might be able to deduct private mortgage insurance payments on a second home, too. As with your primary residence, the loan on the second home must have been issued in 2007 or later to be deductible.
The PMI on the additional property qualifies only if the home is used by you personally. If you rent it out, then you won’t get PMI help from the IRS unless you claim tax breaks on the home as rental property.
Finally, while there is no statutory limit on the amount of PMI premiums you can deduct, the amount might be reduced based on your income.
The deduction begins phasing out when a homeowner’s adjusted gross income, or AGI, is more than $100,000. This income limit applies to single, head of household or married filing jointly taxpayers. The phaseout begins at $50,000 AGI for married persons filing separate returns.
The PMI deduction is reduced by 10 percent for each $1,000 a filer’s income exceeds the AGI limit. The deduction disappears completely for most homeowners whose AGI is $109,000, or $54,500 for married filing separately taxpayers.
Which tax bracket are you in? Check out the 2016 and 2017 tax bracket rates.