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- The mortgage insurance (PMI) deduction has expired for 2022, and guidelines for the 2023 tax year have not yet been determined.
- For eligible years, PMI is deductible only if you itemize your tax deductions.
- Most borrowers pay mortgage insurance premiums when putting down less than 20 percent on a home.
You might not know it, but in 2019, Congress reintroduced a federal tax deduction for private mortgage insurance (PMI). This allowed homeowners who were paying mortgage insurance the ability to write off the premiums for tax years 2018, 2019, 2020 and 2021 if they itemized their tax deductions. The deduction was no longer available as of tax year 2022.
Is mortgage insurance tax-deductible?
No, private mortgage insurance isn’t tax-deductible at this time. Depending on the tax guidelines released for 2023, you might be able to take the PMI deduction.
The mortgage insurance deduction was made available again for eligible homeowners for the 2018, 2019, 2020 and 2021 tax years.
It was only possible to take the deduction if you itemized, and if your combined itemized deductions were greater than the standard deduction for your filing status and tax year.
PMI tax deduction requirements
To take the PMI tax deduction for tax years 2018, 2019, 2020 or 2021, keep in mind:
- The deduction is allowed only if the mortgage for which you pay PMI was taken out on or after Jan. 1, 2007.
- A home refinanced after Jan. 1, 2007 still qualifies for PMI deduction if it is your primary residence.
- A second home might qualify for the deduction if the mortgage was taken out on or after Jan. 1, 2007, but it depends on how the home is used. PMI on a second property only qualifies if the home is used by you personally, not rented out.
There are also restrictions to PMI deductions, including:
- The mortgage insurance deduction will only apply to refinanced funds up to the original loan amount, not any extra cash you took out with the new loan.
How much can you save with the PMI tax deduction?
Homeowners typically pay between $30 and $70 a month in PMI premiums for every $100,000 of financing, according to Freddie Mac estimates. However, the size of the down payment, loan type and lender requirements can all affect your actual cost.
How much you can save depends on how much you owe and your tax bracket. Let’s say your adjusted gross income is $100,000 and you’re paying $120 per month in PMI premiums. Assuming you itemize deductions and that you can fully deduct all of the premiums, you would reduce your taxable income by $1,440.
PMI tax deduction calculation example
To calculate your savings, you’ll multiply your claimed deduction (amount of deduction you are able to deduct above standard deduction) X income tax percentage: claimed deduction x tax percentage = annual tax savings.
In this case, if you’re in the 20 percent bracket, your annual tax savings would be in the neighborhood of $288 annually ($1,440 X .20).
Depending on guidelines released for the 2023 tax year, you might still be able to take the PMI tax deduction. Consider that taking the standard deduction might be the better option, however. The best way to save on PMI costs is to eliminate them altogether.
FAQ related to PMI tax deductions
Private mortgage insurance is an insurance policy that protects the lender if the borrower is unable to make their mortgage payments. PMI is beneficial to you — the borrower — in that it lets you make a down payment of less than 20 percent of your home’s purchase price.
For tax years 2018-2021, you can deduct the private mortgage insurance you paid if you itemized your deductions.