We continue to hear threats of axing the mortgage interest and PMI tax deductions. So what is the latest?
Low to Middle level taxpayers take their tax deductions seriously and want everything possible that will lower their tax burden or better yet, increase their REFUND. The National Association of Home Builders estimates that deducting MI premiums will save homeowners more than $1.3 billion per year so this is important stuff. Over the years PMI on a primary residence has been an allowable deduction for many but there are limitations and rules to it. Many people have their fingers crossed hoping that the tax break is extended past it’s expiration of 12/31/2014.
Private Mortgage Insurance (PMI) Deduction Rules:
- Taxpayers with adjusted income below $100,000 = deduct 100% of PMI premiums
- Adjusted gross from 100,000.01 – $110,000 = deductions are phased out 10% for each $1000
- Therefore no PMI deductions for income over $110,000
- PMI treated the same as Mortgage Interest deductions
- Mortgage must have been taken out after 2006
- Mortgage must have been used to acquire a primary residence
- The rule could even apply to reverse mortgage insurance premiums in limited scenarios
PMI Tax Deduction has been extended!
The President just signed a bill to renew the tax deductibility of mortgage insurance for those that qualify. The deductibility can count towards refinance and purchase transactions that closed after December 31, 2014. MI premiums paid or accrued after 12/31/14 through 12/31/16 may qualify for deductibility.
Mortgage Insurance often gets a bad reputation but it can often be a very helpful tool for borrowers that need to or want to put down less than 20% on the purchase or refinance of a home. So buyer using PMI for a lower down payment and flexible conventional mortgage could also have the additional tax deduction as well.
A very popular question among buyers, realtors, and even attorneys is “When does PMI stop on a mortgage loan?”. Well that can vary depending on the type of the loan and how much money was borrowed in relation to the price and/or appraised value.
** As always, Make sure you ask your tax professional about your tax related questions or scenarios. Team Move does not offer tax advice.