For those who own a house or plan to buy one, mortgage insurance premium deduction can be an important aspect of understanding how the tax code can work for you. Mortgage insurance is a policy that helps protect lenders from the risk of default on a mortgage loan. When you have mortgage insurance, your lender can recoup money if you default on your loan. While you may need mortgage insurance to qualify for a home loan, the good news is that you may be able to deduct the premiums you pay for this insurance on your tax return.
What Is Mortgage Insurance Premium?
Mortgage insurance premium is a fee that borrowers must pay to obtain mortgage insurance. This premium can be a stand-alone policy or can be added to your monthly mortgage payment. Essentially, the premium is an additional fee to protect the lender from the risk of default on a mortgage loan. If you put less than 20% down on your home, you will likely be required to pay mortgage insurance. Additionally, if you have an FHA or USDA loan, you will be required to pay mortgage insurance, regardless of the down payment amount.
The amount of your mortgage insurance premium will depend on the size of your loan and your down payment. Generally, the lower your down payment, the higher your mortgage insurance premium.
What Is Mortgage Insurance Premium Deduction?
If you pay for mortgage insurance as part of your mortgage payment, you may be eligible to take a tax deduction for the premiums you pay. The mortgage insurance premium deduction was originally introduced in 2006 and has since been extended multiple times. This deduction can be claimed by taxpayers who itemize their deductions on their tax returns.
The mortgage insurance premium deduction is designed to help make homeownership more affordable. By allowing taxpayers to deduct the cost of mortgage insurance premiums, the government is effectively reducing the cost of homeownership for those who are required to pay mortgage insurance.
How to Qualify for Mortgage Insurance Premium Deduction?
To qualify for the mortgage insurance premium deduction, you must meet a few requirements. First, your mortgage must have been originated after January 1, 2007. Second, your mortgage insurance contract must have been issued after December 31, 2006. Finally, your income must be below a certain threshold.
The income threshold for the mortgage insurance premium deduction changes each year, so it’s important to check the current limit before claiming the deduction. For tax year 2020, the income threshold is $109,000 for married couples filing jointly and $54,500 for those filing separately.
How to Claim the Mortgage Insurance Premium Deduction?
To claim the mortgage insurance premium deduction, you need to itemize your deductions on Schedule A of your tax return. You will need to report the amount of mortgage insurance premiums you paid during the year on line 8d of Schedule A. If you paid more than $600 in mortgage insurance premiums during the year, you should receive a Form 1098 from your lender. This form will show the amount of mortgage insurance premiums you paid during the year.
If you pay mortgage insurance as a stand-alone policy, you may not receive a Form 1098. In this case, you should keep a record of the amount of mortgage insurance premiums you paid during the year so you can accurately report this amount on your tax return.
FAQ
1. Can I deduct mortgage insurance premiums if I take the standard deduction?
No. The mortgage insurance premium deduction can only be claimed if you itemize your deductions on your tax return. If you take the standard deduction, you will not be able to claim this deduction.
2. Is the mortgage insurance premium deduction available for all types of mortgages?
No. The deduction is only available for mortgages that were originated after January 1, 2007 and have a mortgage insurance contract that was issued after December 31, 2006.
3. Can I deduct mortgage insurance premiums if I have a second mortgage?
No. The mortgage insurance premium deduction can only be claimed for the premiums paid on your primary mortgage.
4. Can I deduct mortgage insurance premiums if I have a rental property?
No. The mortgage insurance premium deduction is only available for homeowners who use their home as their primary residence.
5. Can I claim the mortgage insurance premium deduction if I am self-employed?
Yes, as long as you meet the other eligibility requirements.
Tax Year |
Income Threshold (Married Filing Jointly) |
Income Threshold (Filing Separately) |
2014 |
$110,000 |
$55,000 |
2015 |
$110,000 |
$55,000 |
2016 |
$109,000 |
$54,500 |
2017 |
$109,000 |
$54,500 |
2018 |
$109,000 |
$54,500 |
2019 |
$109,000 |
$54,500 |
2020 |
$109,000 |
$54,500 |
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