Key Points:
- You probably pay for mortgage insurance every month if you didn’t put at least 20% down on your house when buying.
- Your servicer is required to automatically terminate the private mortgage insurance (PMI) on the date when your principal balance is scheduled to reach 78% of the original value of the home.
- To take some of the sting out of the payments, a mortgage insurance tax deduction was available for federal taxes. But due to changes in tax law, it will no longer be available when you file your 2019 taxes.
While no one ever relished the idea of forking over mortgage insurance payments each month, being able to take a tax deduction for it every year helped to ease the pain a bit.
But after the tax reforms implemented under the Tax Cuts and Jobs Act of 2017, will you still have that break?
This guide will explain the mortgage insurance premium deduction, how to know whether you can claim it, and other ways to save on taxes as a homeowner.
In this guide:
- Is mortgage insurance tax deductible?
- Do you qualify for a mortgage insurance premium deduction?
- Save money by canceling your PMI or MIP
- Other tax breaks for homeowners
Is mortgage insurance tax deductible?
When you file your income tax return in 2020 for the 2019 tax year, you will no longer be able to deduct mortgage insurance payments.
In the past, you could claim mortgage insurance payments as a deduction from your taxable income. But the Tax Cuts and Jobs Act of 2017 (TCJA) eliminated that deduction beginning in 2019, along with several other deductions, in favor of a higher standard deduction.
The Mortgage Insurance Tax Deduction Act of 2017 was introduced in Congress to make the mortgage insurance tax deduction permanent, but it was never passed into law.
What is a mortgage insurance premium?
If a borrower defaults on home loan payments, a mortgage insurance policy will help cover losses for the lender.
A mortgage insurance premium (MIP) is the expense included with Federal Housing Administration mortgage. Because FHA loans require lower down payments and allow lenders to accept riskier borrowers than conventional mortgages, required mortgage insurance reduces the risk for the lender.
A similar charge for conventional mortgages, private mortgage insurance (PMI) is required if your down payment is less than 20% when you take out a conventional mortgage.
Mortgage insurance premium deduction for 2018
You can still deduct mortgage interest in certain cases when you file an amended return for 2018. Whether you qualify for a mortgage insurance premium deduction will depend on a number of factors (listed below).
Mortgage insurance premium deduction for 2017
If you’re filing an amended return for 2017, you can deduct mortgage interest if you meet the criteria listed below.
Do you qualify for a mortgage insurance premium deduction?
To claim the deduction on amended tax returns, you need to meet these criteria:
- The loan was issued on or after Jan. 1, 2007.
- It is for your primary residence or second home.
- Your adjusted gross income (AGI) is less than $109,000.
If you claim the standard deduction
If you take the standard deduction on your taxes, which is advantageous for many filers, you wouldn’t be eligible for the mortgage insurance deduction when filing your amended taxes.
For the tax year 2018, before the mortgage insurance deduction went away, the standard deduction was $12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly.
If your itemized deductions add up to less than that, you’ll likely want to claim the standard deduction.
How to claim the mortgage insurance premium tax deduction
If you want to amend a tax return to get the mortgage insurance deduction for past years, here’s what you’ll do:
- Dig out the tax return from the year you wish to amend.
- Go over the list of criteria to ensure you’re eligible for the deduction.
- File an amendment using form 1040-X from the IRS.
Save money by canceling your PMI or MIP
Because you can no longer claim a deduction for mortgage interest you paid in 2019, it’s best not to pay it to begin with. However, if you didn’t put 20% down on the original loan, there are two ways you can have your PMI removed.
Request PMI cancellation
When you reach the date that your mortgage is scheduled to fall to 80% of the original value of your home, you can request that your servicer cancel your PMI.
This date should have been provided in writing on a PMI disclosure form when you received your mortgage. If you can’t locate the form, your servicer can provide this information.
Additionally, you can request for your PMI to be cancelled earlier than the scheduled date if you have made extra payments that have reduced your mortgage to 80% of the original value.
It’s important to understand that this is not guaranteed to work. Your lender will likely require you to do the following before making a decision:
- Submit the request in writing
- Be current on your payments and have a good payment history
- Certify that there are no additional mortgages taken out on the home
- Provide an appraisal that the value of the property hasn’t declined from the original value
Automatic PMI termination
Your servicer must automatically terminate your PMI on the date when your principal balance is scheduled to reach 78% of the original value of your property. This termination does not require you to submit a request.
However, you need be current on your payments. If you are not current, PMI will not be terminated until after your payments are brought back up to date.
If you have an FHA loan, MIP removal might be harder. If you didn’t put at least 10% down on your house when you took out the loan, you will have to pay MIP for the life of your loan. If you did put down at least 10%, your MIP will be removed after 11 years.
If you can’t cancel your MIP, you could refinance your mortgage into a conventional mortgage loan to get rid of the fee.
Other tax breaks for homeowners
Homeowners may be able to claim these other tax deductions and credits.
Tax deductions for homeowners
If you claim itemized deductions, you may be able to deduct these expenses:
- Home mortgage interest deduction
- Home equity loan deduction
- Property tax
- Real estate tax
- Moving expenses
- Sale of home
Tax credits for homeowners
Even if you claim the standard deduction, you can still claim tax credits. Some credits you may be eligible for include:
- Residential Energy Efficient Property Credit
- Nonbusiness Energy Property Credit
- Low-Income Housing Credit (for owners)