Yes you can write off Mortgage Insurance. You need to read the article to find out if you are eligible for the new rules. Prior to 2010 the Internal Revenue Service (IRS) did not allow home owners to deduct the premiums of Private Mortgage Insurance (PMI) or other mortgage insurance that were designed for the benefit of the lender in case of default by the borrower. Typically a borrower who did not have 20% down on the purchase price of the home was required to carry mortgage insurance. A lot of the buyers asked the lender to add the premium payment amount to the total finance of the loan. In this way they qualified to claim the deductible on their IRS return. The premium payment became part of the monies financed for the home, subject to the interest rate being charged, and thus, deductible on the return as interest paid on the loan.
Mortgage insurance companies wanted their product to be deductible on personal income tax returns. They went to Congress and asked that it be made allowable. In order to qualify for the deductible claim the insurance must meet the definition of mortgage insurance in the Homeowner’s Protection Act of 1998 which Congress passed. Some of the qualified insurances are those required by the Federal Housing Authority (FHA), Rural Housing Service, Veteran’s Administration (VA), and other private mortgage insurance lenders.
Before taking this deduction on your income tax return you must make sure that you qualify for the deductible. Your adjusted gross income is limited and it is determined based on the filing status you choose on your return. Your household income cannot exceed $100,000 is you are married. If you are married but filing separately from your spouse your individual income cannot exceed $54,000. You must be claiming the deduction for your primary residence and the amount you claim must be equivalent to that reported on IRS Form 1098. You will receive Form 1098 from your lender at the end of every tax year. The information on the form is what you use when you are filing your return and claiming deductibles.
The deduction will expire long before the deduction that you are allowed for mortgage interest paid. When Congress passed the Act allowing for the deductible it was set to expire at a specified time. The time has been extended on the 2010 tax year but not beyond. You should watch IRS Publication 936 for updates to see if Congress extends the deductible past the year 2010.
If the lender allows an insurance known as pre-paid mortgage insurance you will be deducting the premium payments differently than you would with PMI. Pre-paid mortgage premium deductions are limited to 84 months or less if the loan term is less than 84 months. The premium you pay in the tax year covers the life of the loan. VA notes and Rural Housing Service loans are exempt from deductible claims. Here’s an example to help you determine your deductible amounts: Let’s say you took out your loan in August of the tax year. You will be able to claim only five months of the pre-paid annual premium. The total 84 month premium is divided by 84 months to get the monthly amount of the premium that is deductible. The monthly amount multiplied by the five months that you are claiming in our example is the amount you can claim for the tax year. Only the months of August, September, October, November and December fall within the current tax year. The rest of the premium paid will be deductible in the following tax year (12 months of the premium amount) if authorized by Congress as deductible.