The ability to deduct mortgage insurance premiums for tax purposes expired after the 2021 tax year. Therefore, for current tax years, taxpayers generally cannot deduct mortgage insurance premiums.
Historically, when the deduction was active, it was treated as qualified residence interest and was subject to specific eligibility requirements and income limitations.
Historical Eligibility for Deduction (Through 2021)
When the deduction for mortgage insurance premiums was available, certain taxpayers could claim it if they met specific criteria. This deduction applied to premiums paid on various types of mortgage insurance, including:
- Private Mortgage Insurance (PMI): Required by lenders when a homebuyer makes a down payment of less than 20% of the home's purchase price.
- Federal Housing Administration (FHA) Mortgage Insurance Premiums (MIP).
- Veterans Affairs (VA) Funding Fees.
- United States Department of Agriculture (USDA) Rural Housing Service (RHS) Guarantee Fees.
To be eligible for the deduction in past tax years (through 2021), taxpayers typically had to meet the following conditions:
- The mortgage insurance contract was issued on or after January 1, 2007.
- The insurance covered indebtedness incurred to buy, build, or improve a first or second home.
- The taxpayer itemized their deductions on Schedule A (Form 1040), Itemized Deductions. This means they could not claim the standard deduction.
Income Limitations (Applicable Through 2021)
A significant factor in determining eligibility and the deductible amount for mortgage insurance premiums in past years was the taxpayer's Adjusted Gross Income (AGI). The deduction was subject to a phase-out based on AGI, meaning higher-income taxpayers saw their deduction reduced or eliminated.
For example, for the 2021 tax year, the deduction began to phase out for taxpayers with an AGI over $100,000 ($50,000 for married couples filing separately). It was completely disallowed for those with an AGI exceeding $109,000 ($54,500 for married couples filing separately).
The table below illustrates the AGI limits that applied when the deduction was active (e.g., for the 2021 tax year):
| Filing Status | AGI Where Deduction Begins to Phase Out | AGI Where No Deduction Was Allowed |
|---|---|---|
| Single, Head of Household, QW | Over $100,000 | Over $109,000 |
| Married Filing Separately | Over $50,000 | Over $54,500 |
| Married Filing Jointly | Over $100,000 | Over $109,000 |
Note: The deduction was reduced by 10% for every $1,000 (or fraction thereof) that a taxpayer's AGI exceeded the $100,000 ($50,000 for MFS) threshold.
Avoiding Mortgage Insurance
While the deduction for mortgage insurance premiums is no longer available, it's worth noting that private mortgage insurance (PMI) itself is often not necessary if you buy a house using a 20% or more down payment. By putting down at least 20% of the home's purchase price, borrowers can typically avoid paying PMI, thereby saving on monthly housing costs regardless of tax deductibility.
Current Status
For tax years after 2021, the provision allowing the deduction for qualified mortgage insurance premiums has expired. Taxpayers should consult the latest IRS guidance or a qualified tax professional for up-to-date information regarding eligible deductions.
