Blue home - is mip tax deductible
Blue home - is mip tax deductible

What homeowners need to know about PMI tax deduction 

After months of searching, countless open houses, and endless deliberation, you’ve finally found your dream home. Like many homebuyers, your mortgage requires Private Mortgage Insurance (PMI). The premium will most likely be included in your monthly payment, and you may be wondering whether PMI is tax deductible. 

Key points: Mortgage Insurance Premiums (MIP) or Private Mortgage Insurance (PMI) 

  • Generally, home buyers with less than 20% equity pay PMI 
  • The portion of your monthly mortgage payment that covered PMI (or MIP) was deductible up to the tax year 2021 thanks to the Consolidated Appropriations Act of 2020  
  • The deduction was subject to qualified taxpayers’ AGI limits 
  • The deduction applied to premiums on mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, the Rural Housing Service, and private insurers 
  • To take the mortgage insurance deduction, taxpayers were required to itemize deductions on their tax returns 

Is PMI tax deductible?  

While PMI adds to monthly mortgage costs, it was once partially offset by a tax deduction. The PMI tax deduction was introduced in 2006, allowing homeowners to claim deductions on mortgage insurance premiums. This deduction was extended periodically until the 2021 tax year, providing relief for eligible homeowners who met specific criteria, including itemizing deductions and meeting income thresholds. However, with the expiration of the deduction, homeowners face uncertainty regarding its future availability. 

Is PMI tax deductible for the 2023 tax year?  

As of tax year 2022, the PMI tax deduction is no longer available, so you can’t claim it on your 2023 tax return. While Congress could potentially reinstate the deduction in the future, homeowners must stay informed about legislative changes and their implications for tax planning

We also recommend exploring alternative tax-saving opportunities and optimizing your financial planning to mitigate the impact of the PMI deduction expiration. 

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PMI tax deduction income thresholds 

The most recent income phaseouts for PMI deductibility were: 

Filers who aren’t married filing separately 

  • Adjusted gross income (AGI) of $100,000 
  • For each $1,000 above this threshold, the deduction is reduced by 10% until the total income phaseout for above $109,000 AGI 

Filers who are married and filing separately 

  • AGI of $50,000 
  • For each $500 above that threshold, the deduction amount is reduced by 10% until the total income phaseout for above $54,500 AGI 
Calculating potential savings 

The potential savings from PMI tax deductions depend on various factors, including the amount paid towards PMI premiums and the homeowner’s tax bracket. For instance, homeowners typically pay between $30 and $70 a month in PMI premiums for every $100,000 of financing. However, the actual cost can vary based on factors such as the size of the down payment, loan type, and lender requirements. 

Let’s consider an example:  
Suppose a homeowner with an AGI of $100,000 pays $75 per month in PMI premiums. If they can fully deduct these premiums, they could reduce their taxable income by $900 annually ($120 x 12 months). 

Can I still claim PMI tax deductions? 

While the PMI tax deduction may no longer be available for the current tax year, homeowners can benefit from exploring retroactive claims and staying updated on future legislative changes.  

For homeowners still working on past tax returns, the option to claim PMI deductions for eligible years through amended returns may be available. However, it’s essential to evaluate whether the time and effort required to amend past returns justify the potential tax savings. Consulting with a qualified tax professional can provide valuable insights into the feasibility and benefits of retroactive claims. 

We always recommend consulting a qualified CPA before claiming a deduction or credit with detailed qualifying rules. Schedule a consultation with one of our CPAs for personalized guidance on tax planning and maximizing potential deductions.  

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