Since 2007 private mortgage insurance (commonly referred to as “MI”) has been tax deductible; and Congress recently extended the deduction through the 2016 tax year. (Congress has not yet made a decision on whether MI tax deductibility will continue for 2017.)
HOW DOES MI TAX DEDUCTIBILITY WORK?
If you itemize your tax deductions and have paid or accrued MI premiums on a mortgage contract written after January 1, 2007, you are eligible to deduct your premiums on your federal income taxes, subject to certain income restrictions.
HOW LONG WILL THIS TAX DEDUCTION BE AVAILABLE?
The deduction of MI premiums on federal tax returns has been extended through the 2016 tax year. Congress has not yet made a decision on whether MI tax deductibility will continue for 2017.
HOW COME THE TAX DEDUCTION IS NOT PERMANENT?
Congress often introduces new provisions into the tax code for a specific time frame for budgetary or other reasons. However, Congress has the power to extend the deduction for future years, or even to make it permanent.
DO I QUALIFY FOR THE TAX DEDUCTION?
If your adjusted gross income is $100,000 or less, you can deduct 100% of your BPMI premiums. Your deduction is reduced by 10% for each additional $1,000 of adjusted gross income, phasing out after $109,000.
If you are married and filing separately, the adjusted gross income threshold is $50,000 per person. The deduction is reduced by 5% for each additional $500 of adjusted gross income, phasing out after $54,500.
IS THE TAX DEDUCTION ONLY FOR FIRST TIME HOMEBUYERS?
No. It is for anyone who meets the income criteria and who is making MI premium payments.
IS THE TAX DEDUCTION ONLY FOR HOME PURCHASES OR ARE REFINANCES INCLUDED TOO?
The MI tax deduction applies to purchases and refinances up to the original loan amount. Cash-out refinances that require MI are excluded.
ARE THERE ANY OCCUPANCY RESTRICTIONS?
The deduction only applies to a “qualified residence” as defined in the Internal Revenue Code. A qualified residence generally includes a principal residence and up to one other residence used for personal purposes for the greater of 14 days or 10% of the number of days during the tax year that the property is rented out at fair value, among other criteria.
ARE INVESTOR LOANS ELIGIBLE?
IS THERE A LOAN AMOUNT LIMIT?
No. The MI tax deduction is only limited by your income.
IS TAX-DEDUCTIBILITY APPLICABLE FOR ALL LOAN TYPES?
There is no differentiation among loan types. Mortgage loans used for “acquisition indebtedness” (i.e., money borrowed to buy, build or substantially improve a residence) qualify for the deduction as long as the debt is secured by the same residence; this includes purchase and refinance loans up to the original acquisition indebtedness.
ARE ALL OF ESSENT'S MI PRODUCTS ELIGIBLE?
Our BPMI monthly, annual and single premium plans qualify for the federal tax deduction. If your BPMI single premium is financed, both the interest attributable to the entire loan balance and the allocated portion of your MI premium are tax deductible.
LPMI monthly, annual and single premium plans do NOT qualify for the deduction. With LPMI, premiums charged to your lender are not passed on to you in the escrow arrangement; instead, they are paid by your lender or are passed on to you, if at all, by increasing your loan’s interest rate or other fees. The additional interest, if any, is tax deductible.
Important: You should consult your tax adviser about the applicability of this deduction to your particular circumstance under the Internal Revenue Code and the laws of any other taxing jurisdiction.