Is PMI or MIP Tax Deductible?

Private mortgage insurance (PMI) and Mortgage Insurance Premiums (MIP) are often required for homebuyers who put down less than 20% on their homes. These insurance premiums were not deductible for from federal taxes for years, but the legislation surrounding this has evolved.

The Further Consolidated Appropriations Act of 2020 allowed MIP and PMI tax deductions for 2018-2021 if qualified taxpayers filed an amended federal tax return. Tax filers were able to use the deduction on line 8d of Schedule A (Form 1040) for amounts paid or accrued. The deduction expired at the end of 2021 and is not tax deductible for tax year 2022 and beyond.

Key Takeaways

• You may deduct private mortgage insurance from your taxes if you meet specific requirements.
• In 2019, Congress extended MIP and PMI tax deductions for 2020 and 2021, plus retroactively for 2018 and 2019.
• For 2021, the deduction was not allowed for taxpayers with an AGI over $109,000 or $54,500 for married couples filing separately.
• Private mortgage insurance isn’t necessary if you buy a house using a 20% or more downpayment.
• If you have 20% equity in your home, you can request that your PMI be canceled, which may save you money in the long run.

PMI Tax Deduction: Legislation Timeline

The Tax Relief and Health Care Act of 2006 introduced the deduction for mortgage insurance premiums. Since then, Congress has made several moves to extend or reinstate this deduction.

• 2015: The Protecting Americans from Tax Hikes (PATH) Act extended the deduction for one year, covering tax year 2015.
• 2017: The Bipartisan Budget Act of 2018 retroactively extended the deduction for 2017.
• 2019: California Representative Julia Brownley introduced the Mortgage Insurance Tax Deduction Act of 2019, which would make the mortgage insurance deduction a permanent part of the tax code and would apply retroactively to all amounts paid or accrued since Dec. 31, 2017.
• 2020-2021: The Further Consolidated Appropriations Act of 2020 allowed PMI tax deductions for 2020 (and beyond) and retroactively for 2018 and 2019 if taxpayers filed amended returns.

Unfortunately, the future of this deduction remains uncertain as tax legislation changes over time.

How Much Could the PMI Deduction Save a Taxpayer?

The savings from the PMI deduction depend on your tax bracket and how much you pay in premiums. On average, homeowners pay around $50 per month in PMI premiums for every $100,000 of financing. If you paid $1,500 in PMI premiums for the year, you could save between $180 and $330, depending on your tax bracket. Keep in mind, though, that the amount of the down payment, type of loan, and lender requirements can all affect your actual cost.

Let’s say you bought a $200,000 home, put down 5%, and paid $1,500 in PMI premiums over a year. If your adjusted gross income (AGI) is $100,000:

• If you’re in the 12% tax bracket: You save $180 ($1,500 x 12%).
• If you’re in the 22% tax bracket: You save $330 ($1,500 x 22%).

Note that the deduction would reduce your taxable income by $1,500.

Important

A step better than a tax deduction, getting rid of PMI altogether is even nicer. A homeowner can cancel PMI when they have 20% equity in their home.

Origins of Mortgage Insurance Tax Deduction

This tax deduction first appeared as part of the Tax Relief and Health Care Act of 2006. It was initially available for mortgages originated in 2007 and beyond.

In response to the slow recovery in the housing market, the Protecting Americans from the Tax Hikes Act of 2015 extended the deduction to 2016. The mortgage insurance deduction was found on Schedule A on tax returns on line 8d. The amount entered in this section was found in box five of Form 1098 sent by the lender.

As of 2021, the itemized deduction for mortgage insurance premiums has expired.

What Is Private Mortgage Insurance?

PMI is insurance that lenders require from homebuyers who put down less than 20% of the home’s purchase price. PMI protects the lender in case the borrower defaults on the loan. If your down payment is less than 20%, you will likely have to pay PMI until you’ve built enough home equity (usually 20%). Once you reach 20% equity, you can request that the lender remove PMI from your mortgage payments.

Can I Deduct My PMI?

You can deduct your PMI or MIP from your federal taxes if you meet the eligibility criteria for the applicable tax years (2018-2021). Be sure to review the current requirements and file accordingly.

How Can I Cancel My PMI?

Typically, PMI can be canceled once you have 20% equity in your home. Lenders may also automatically remove PMI once you reach 22% equity. It is important to stay on top of your mortgage payments and to request the removal of PMI when appropriate.

The Bottom Line

At the time of writing, the PMI deduction is not available. If you qualify for past years, you may still be able to deduct PMI. However, the best strategy for eliminating PMI is to pay down your mortgage and request PMI cancellation once you reach 20% equity in your home.