Mortgage insurance premiums are still deductible for the 2017 tax year

Editor’s note

According to Turbo Tax:

For tax year 2018, the PMI deduction is currently unavailable. At this time we don't know when, or if, Congress will approve this deduction for tax year 2018. If the deduction is approved after you file your 2018 return, you can file an amendment to claim the deduction. Alternatively, you can postpone filing your return until Congress definitively approves or denies the deduction for 2018.

The following information pertains to the 2017 tax year and will be maintained for historical purposes.

Mortgage insurance is still tax deductible

Good news for those who pay private mortgage insurance (PMI) premiums on their mortgage. They are still tax deductible for the 2017 tax year (but discontinued in 2018 — always check with your tax advisor before filing.)

While PMI is no fun to pay, fortunately, it can potentially lower your overall tax burden.

Why are mortgage insurance premiums deductible?

More than four million people finance and refinance with mortgages backed private mortgage insurance (PMI) or the government-sponsored versions of PMI provided by FHA, VA, and USDA loans. Since 2007, the premiums on mortgage insurance coverage have been tax deductible. On average, borrowers have been able to write off about $1,500 a year.

But the deduction isn’t permanent.

Write-offs for mortgage insurance began in 2007 because the real estate market was headed toward a downturn.

According to ATTOM Data Solutions foreclosure notices rose from 885,000 in 2005 to 2.2 million in 2007.

Congress and mortgage insurance deductions

Official Washington was desperate to stop the carnage back then. With a new deduction for mortgage insurance premiums, homeowners in every congressional district suddenly had bigger tax write-offs.

Rather than a cure, the original legislation was a short-term fix. First, the legislation was set to automatically end in 2007 under the Tax Relief And Health Care Act Of 2006.

Second, there was an income cap. According to TurboTax, here are the limits:

• Adjusted gross income (AGI) above $100,000 ($50,000 for married filing separately): the deduction is reduced
• AGI above $109,000 ($54,500 if married filing separately): deduction is eliminated

Every so often, Congress extends the deductibility of mortgage insurance premiums. Currently, we have the Bipartisan Budget Act of 2018 which says homeowners can deduct mortgage insurance premiums paid in 2017 and beyond.

Always check with your CPA, but for now, mortgage insurance is still deductible for the 2017 tax year.

Mortgage insurance premiums for the 2018 tax year

According to Turbo Tax, the mortgage insurance deduction is not available for the 2018 tax year.

Obviously, the PMI write-off may not be available for the 2019 tax year, either.

Even if the PMI deduction is extended, keep in mind that the standard deduction has been raised to as much as $24,000 for a married couple.

If you take that itemized deduction, you can’t write off PMI.

If you have more than $24,000 in write-offs, consider taking the PMI deduction.

The Tax Policy Center estimates that under tax reform, only 4 percent of all filers will elect to itemize. That compares with the usual average of 21 percent.

For specific tax advice, be sure to speak with a tax professional.

What are today’s mortgage rates?

While current mortgage rates are higher than the lowest rates of 2017, they are still very much on the low end of the historical range. You can find your best rate by shopping with several competing lenders, making yourself as attractive a borrower as possible, and considering ARM loans if you don’t plan to keep the property for 30 years.