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Is PMI Tax Deductible?

Is PMI Tax Deductible?
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Your monthly payment may include items beyond just the loan principal and interest when you take out a mortgage to buy your property. Depending on your type of loan program and how much of a down payment you make, your lender may add private mortgage insurance to your monthly payment. PMI is tax-deductible on your Schedule A if you choose to itemize, along with your mortgage interest.

But the IRS sets specific rules on when your mortgage must have been taken out, as well as which taxpayers qualify for this deduction. It's important to understand all these factors before moving forward with the mortgage insurance tax deduction on your tax return.

Understanding Private Mortgage Insurance

You can find special programs that might not require it, but PMI is a common component of conventional mortgage programs for borrowers who can't provide a ​20 percent​ or higher down payment. A down payment of this size offers the lender some security in case you can't make timely mortgage payments. It's an added expense, but it can make homeownership more accessible to those without significant savings.

Many borrowers have the PMI premium added to their mortgage payments until they have met the lender's set loan-to-value ratio. Others pay for this expense upfront, or they pay both upfront then monthly.

The mortgage insurance premiums you pay can vary based on various factors. The amount of your down payment, your credit profile and the loan program can all play a part in determining it. PMI can be as little as ​0.25 percent​ and as much as ​2 percent​ of the mortgage principal amount remaining. You may find that you pay $100 or $125 a month in PMI if you have a $200,000 outstanding mortgage loan amount.

You can usually stop paying mortgage insurance premiums when you meet your lender's terms. You may have to request that your PMI be canceled when conditions have been met, but some lenders will cancel it for you automatically when the time comes.

Read more​: What is PMI?

Exploring the PMI Tax Deduction

PMI was originally deductible for itemizing taxpayers for tax years ​2007 through 2017​. This deduction expired after the ​2017​ tax year, and wasn't available in ​2018 or 2019.​ But a congressional act signed near the ​end of 2019​ reinstated this helpful deduction and allowed taxpayers to file amended returns for ​2018 and 2019 to​ get a retroactive PMI deduction. Congress then extended the deduction through ​tax year 2021​, so you can claim it on the return you file in 2022 as well.

This means that you're free to report your PMI premiums and see a reduction in your federal taxable income to get some tax savings, as long as you claim itemized deductions and not the standard deduction. But there are limitations and considerations:

  • AGI limits​: You'll need to have a maximum adjusted gross income of ​$50,000​ (married filing separately) or ​$100,000​ (all other taxpayers) to deduct all your PMI in tax year 2021. You could get a partial deduction if you make up to ​$54,500​ (married filing separately) or ​$109,000​ (all other statuses), but you're disqualified with a higher AGI. The IRS has you go through some calculations when taking the deduction to determine how much you can get.
  • Mortgage origination date​: You must have taken out your mortgage after ​Oct. 13, 1987​.
  • Home requirements​: This deduction works for first and second homes of which you're the owner and on the loan. You can't take it as a renter or as someone who pays another person's mortgage.
  • Allocation of PMI​: You can only claim the PMI you paid for the tax year. So

you'll have to properly allocate the payments to applicable tax years based on IRS rules

if you prepay your PMI upfront. The IRS indicates that this is usually ​84 months​ or the mortgage term, whichever is shorter.

  • Itemizing requirement​: Deducting your PMI means losing the standard deduction for the year, so it requires careful consideration before you proceed. A single person can claim a ​$12,550​ standard deduction in ​2021​, increasing to ​$12,950​ in ​2022​. These figures double for those who are married and filing a joint return together. You may find that you get a larger standard deduction than all your itemized deductions combined. You'd only get an $8,200 tax deduction if you're single and you itemize with just $1,200 in PMI, $2,000 in property taxes and $5,000 in mortgage interest to deduct. That's $4,350 less than the 2021 standard deduction for your filing status.

Finding How Much PMI You Paid

Take a look at Form 1098, the Mortgage Interest Statement you should have received from your lender, after you've explored the IRS rules for the deduction and have determined that your home, your AGI and your loan origination date all meet the terms. Lenders have to send this document early in the year if you've paid ​at least $600​ in home mortgage interest for the tax year. You can locate your PMI premiums paid in ​box 5​.

It doesn't mean you're out of luck if you don't receive this form because you didn't pay enough mortgage interest. You can ask your lender how much PMI you paid during the year, or you might possibly locate the information on your year-end mortgage statement. Consider whether you'll have enough total itemized deductions to make this extra work worth it.

Calculating Your PMI Deduction

Your deductible PMI will simply be the reported amount paid for the year as long as your AGI doesn't exceed the ​$50,000 or $100,000​ limits for the full deduction, depending on your filing status. You can simply add up the PMI paid for each property and know your deduction if you have two qualifying homes. You'll have a $3,600 PMI deduction if you paid $2,400 in PMI on your first home and $1,200 on your second home.

You must complete the PMI deduction worksheet located in the IRS Schedule A instructions if your AGI (shown on Form 1040line 11​) exceeds the full deduction limit but falls below the limit for a partial deduction. This worksheet asks you to enter the PMI you paid and your AGI. It then asks you to compare your AGI to the filing status thresholds and do various calculations to determine how much PMI is deductible. Here are the steps you'll take for the comparison.

  1. Take your AGI and subtract either the ​$50,000 or $100,000​ limit from it, depending on your filing status.
  2. Round up to the ​next $500 or $1,000​ if necessary to have an even multiple.
  3. Take that new income and divide it by ​$5,000​ (married filing separately) or ​$10,000​ (all other statuses) to get a decimal multiplier. Use 1 if your multiplier is equal to or higher than 1.
  4. Multiply your PMI paid by the multiplier in step three to get an excluded amount.
  5. Subtract the above amount from your PMI paid to get your final deduction amount.

Deducting PMI Premiums

Now go to Schedule A, Itemized Deductions. Enter your deductible PMI amount on ​line 8d​.

This is also a good time to claim other home-related itemized deductions. You can put your mortgage interest paid from ​box 1​ of Form 1098 on ​line 8​ of your Schedule A. You can list your property taxes on ​line 5b​ as well. You can also claim medical expenses, casualty losses from presidentially-declared natural disasters, charitable contributions and local and state taxes on Schedule A, subject to certain rules. This can increase the total amount of your standard deduction and potentially nudge it up higher than the standard deduction you're entitled to claim.

Once you're done claiming itemized deductions, follow Schedule A's instructions to total everything claimed to get your final amount on ​line 17​. That amount is then transferred to Form 1040 on ​line 12a​ as a below-the-line tax deduction.