Are Mortgage Insurance Premiums Tax-Deductible?

If you’ve recently purchased a home or are considering doing so, you may be wondering if your mortgage insurance premiums are tax-deductible. The answer is, it depends. This article will explore the ins and outs of mortgage insurance premiums and their potential tax benefits.

What is Mortgage Insurance?

Mortgage insurance is a type of insurance that protects lenders in case the borrower defaults on their mortgage. It is typically required when a borrower makes a down payment of less than 20% on their home. There are two types of mortgage insurance: private mortgage insurance (PMI) and government mortgage insurance (such as the Federal Housing Administration’s insurance).

Private Mortgage Insurance (PMI)

Private mortgage insurance is typically required by lenders when a borrower makes a down payment of less than 20% on their home. PMI protects the lender in case the borrower defaults on their mortgage. PMI can cost anywhere from 0.3% to 1.5% of the original loan amount annually, depending on the size of the down payment and the type of loan.

PMI can be paid in a variety of ways. It can be included in the monthly mortgage payment, paid as a lump sum at closing, or paid through a combination of the two. PMI payments are typically required until the borrower has paid off 20% of the original loan amount.

Government Mortgage Insurance

Government mortgage insurance is provided by agencies such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture (USDA). These agencies provide insurance to lenders in case the borrower defaults on their mortgage. Government mortgage insurance is typically required for borrowers who have a lower credit score or a smaller down payment.

The cost of government mortgage insurance varies depending on the agency and the size of the down payment. For example, FHA mortgage insurance typically costs 1.75% of the loan amount upfront, plus an annual premium of 0.45% to 1.05% of the loan amount, depending on the size of the down payment.

Are Mortgage Insurance Premiums Tax-Deductible?

Mortgage insurance premiums may be tax-deductible, but the rules surrounding this deduction can be complex. Here’s what you need to know:

The Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act (TCJA) of 2017 made several changes to the tax code, including changes to the deductibility of mortgage insurance premiums. From 2018 through 2025, mortgage insurance premiums are no longer tax-deductible for most taxpayers. However, there are some exceptions.

Exceptions to the Rule

There are a few situations in which mortgage insurance premiums may still be tax-deductible, even under the new tax law. These include:

It’s important to note that even if you are eligible to deduct mortgage insurance premiums, there are income limitations that may reduce or eliminate the deduction entirely. You should consult with a tax professional to determine your eligibility.

FAQ

What is PMI?

PMI stands for private mortgage insurance. It is a type of insurance that protects lenders in case the borrower defaults on their mortgage. PMI is typically required when a borrower makes a down payment of less than 20% on their home.

What is government mortgage insurance?

Government mortgage insurance is provided by agencies such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Department of Agriculture (USDA). These agencies provide insurance to lenders in case the borrower defaults on their mortgage.

What is the Tax Cuts and Jobs Act of 2017?

The Tax Cuts and Jobs Act of 2017 made several changes to the tax code, including changes to the deductibility of mortgage insurance premiums. From 2018 through 2025, mortgage insurance premiums are no longer tax-deductible for most taxpayers.

Are there exceptions to the rule?

Yes, there are some situations in which mortgage insurance premiums may still be tax-deductible, even under the new tax law. These include if you paid mortgage insurance premiums in 2017, if you have a mortgage issued on or before December 31, 2017, and you’ve treated it as home acquisition debt, or if you have a mortgage issued on or before December 31, 2017, and you’ve treated it as home equity debt.

What are the income limitations for deducting mortgage insurance premiums?

Even if you are eligible to deduct mortgage insurance premiums, there are income limitations that may reduce or eliminate the deduction entirely. You should consult with a tax professional to determine your eligibility.

How long do I have to pay PMI?

PMI payments are typically required until the borrower has paid off 20% of the original loan amount.

Can I avoid paying PMI?

If you make a down payment of at least 20% on your home, you can avoid paying PMI. Another option is to take out a second mortgage (also known as a piggyback loan) to cover the cost of the down payment.

Conclusion

Mortgage insurance premiums can be a significant expense for homeowners, but they may also provide some tax benefits. While mortgage insurance premiums are generally not tax-deductible under the new tax law, there are some exceptions. If you have questions about the deductibility of mortgage insurance premiums, it’s best to consult with a tax professional.