For tax year 2016, the tax deduction for private mortgage insurance (PMI) is allowed for mortgages taken out or refinanced after Jan. 1, 2007. If certain requirements are met, mortgage insurance premiums can be deducted as an itemized deduction on your return. If your adjusted gross income (AGI) is $109,000 or more for the year, this deduction is not allowed. This also holds true for married people filing separately, for whom the adjusted gross income limit is $54,500.
This tax deduction originated as part of the Tax Relief and Health Care Act of 2006, and was initially applied to private mortgage insurance policies issued in 2007. In response to the slow recovery in the housing market, the Protecting Americans from Tax Hikes Act of 2015 extended the deduction to 2016. It is unknown if this extension will apply to future tax years, as Congress must directly approve it. The deduction is allowed for policies issued by private mortgage insurers, the Department of Agriculture’s Rural Housing Service, the U.S Department of Veterans Affairs and the Federal Housing Administration.
The mortgage insurance deduction is found on Schedule A of your tax return on line 13 under the “Interest You Paid” section. The amount you should enter in this section is found in box four of the Form 1098 sent to you by your lender.
Example Calculation
You must allocate the insurance premiums over the shorter of the stated term of the mortgage or 84 months, beginning the month the insurance started. Suppose you take out a 15-year mortgage that begins in July of the current year. At the beginning of the loan, you prepay all of the required mortgage insurance for the term of the loan, in this case $8,600.
Deduction = ($8,600 / 84) x 6 months = $614.29
If your income is less than the maximum allowed, you can deduct the above amount for the year.