Mortgage Insurance No Longer Tax Deductable

The Mortgage Insurance (MI) tax deductibility is scheduled to lapse at midnight, December 31. The MI tax deductibility will also lapse for FHA and VA loans as well as those with private mortgage insurance. Below are some Q&A on the topic as your borrowers may have some questions.

How does the Mortgage Insurance Deduction work?

It allows qualified homeowners to take a tax deduction on the insurance premiums they pay, in addition to other deductions related to owning a home, such as mortgage interest and property taxes. An insurance industry trade group estimates the deduction saves a typical homeowner about $350 in taxes.

Is this something new?

Relatively new. Congress created a tax deduction for private mortgage insurance starting in 2007. At first it was limited to mortgage insurance on homes purchased after Dec. 31, 2006 and only for insurance payments made in the year 2007.
A second law extended the deduction (only for homes acquired after Dec. 31, 2006) for another three years, 2008. 2009 and 2010. It has since been extended through 2011 to help boost the distressed housing market,
The deduction covers mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, the Rural Housing Administration as well as private mortgage insurers.
Note: The IRS says that mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. If provided by the Rural Housing Service, it is commonly known as a guarantee fee. The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing.

Are there restrictions?

Yes. Borrowers can’t claim the deduction if their adjusted gross income or AGI (their total income minus certain adjustments like retirement account contributions) exceeds certain limits.
To qualify for a full deduction, a couple or a single taxpayer must have AGI of $100,000 or less to get a full deduction and no more than $109,00 to get a partial deduction. A married person who files separately must have AGI of $50,000 for the full deduction, or no more than $54,500 for a partial deduction.
TurboTax will determine whether you qualify, based on information you provide while doing your return.

Where can I find the payments on forms I receive?

On Form 1098, usually mailed in January by the mortgage company the mortgage insurance issuer to determine the deductible amount if it is not reported in Box 4 of Form 1098.
If you have mortgage insurance not included on the Form 1098, you should manually calculate the premiums and enter them in TurboTax.