Homeowners are now able to deduct what they spend on private mortgage insurance (PMI) from their taxes. As a postponed tax season approaches, borrowers will be looking to save in any way they can. See:Interest Rates at Historic Low: Why does PMI Continue to Rise?
Here’s the 411: Starting in 2007, borrowers were able to deduct PMI from taxes, until the action was suspended in 2017. Now, thanks to the Further Consolidated Appropriations Act, 2020, signed into law by Congress last December, the ability to deduct PMI is reinstated for 2020 and future tax years. Homeowners may also have the ability to file amended tax returns for 2018 and 2019 to receive the deduction.
1. How much will homeowners save on PMI tax deductions?
* The amount you’ll save depends on how much you owe, and your tax bracket, BankRate reported. On average, borrowers can save up to $300 on a $250K loan.
* You only qualify for the deduction if you file an itemized deduction, which might not save you much cash in the long run, if your itemized list is less than the standard deduction for your filing status.
2. Are there restrictions on how much I can deduct?
* Good news: there isn’t a limit on how much you can deduct in PMI premiums, but the amount you actually get back depends on your income. “Income phaseouts” start when a homeowner’s adjusted gross income is over $100,000. Your deduction will be reduced by 10% for every $1,000 your income exceeds the limit. For married taxpayers filing separately, the phaseout starts at $50,000.
* According to BankRate, the mortgage insurance deduction applies to refinances up to the original loan amount, not on any extra cash you might have received with the new home loan.
* You may be able to deduct your PMI rates retroactively for 2018 and 2019 as long you took out your mortgage after January of 2007.
* Bonus: You can deduct your PMI premiums on additional, non-rental, homes you own, and the same restrictions apply.
3. What are the benefits of PMI tax deductions?
Jim Jumpe outlined the three major benefits of deducting PMI from your taxes in a recent post from Arch MI:
* It makes home ownership even more affordable.
* Borrowers are more equipped to plan their purchase with clear knowledge of tax rules beforehand.
* Current homeowners are able to deduct their PMI premiums retroactively saving even more money.
4. How do I deduct PMI from my taxes?
If you have Single PMI, deducting your payments from your taxes may be easier than you think. Houselogic.com outlines the process in a few simple steps. Start with the total amount of your payments, and divide by 84 months or the total number of months you’ll be paying on your loan (whichever is shorter). For example, if you paid $4,200 in single-premium PMI it would look like this:
* $4,200 (single premium) ÷ 84 (months) = $50
* Multiply $50 by the number of monthly mortgage payments you made during the year.
* $50 x 12 (monthly payments) = $600 (your deduction)
* Enter that figure on line 13 of Schedule A, on your 1098.
5. Do experts recommend deducting PMI?
Short answer: yes. Mortgage expert and PMI Rate Pro Founder Nomi Smith, says deducting PMI from your taxes is a smart move.
“If you’re filing an itemized deduction to begin with, it certainly can’t hurt,” said Smith.
PMI Rate Pro makes sure that home buyers are getting the cheapest PMI rates to begin with, so by filing a deduction, you’ll be saving money on top of money.
About PMI Rate Pro
PMI Rate Pro transforms the private mortgage insurance quoting process with innovative software that provides rates from every mortgage insurer in seconds, saving time and money. By providing accurate quotes for home buyers in seconds, loan officers are able to win more deals while saving borrowers money on their insurance rates. The company was founded by Nomi Smith and Luke Landau, two tenured mortgage officers who recognized that home buyers have been overpaying for private mortgage insurance for decades. For more information on PMI Rate Pro, visit www.pmiratepro.com.