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Is PMI Tax Deductible?

is PMI tax deductible

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Margaret Wack
Updated July 13, 2022
3 Min Read

Private mortgage insurance, also known as PMI, is tax deductible for the 2021 tax year. While they’re not a permanent part of the tax code, tax deductions for PMI first went into effect in 2006, and have been extended to at least 2021. This deduction is designed to help make the cost of owning a home more manageable, and is one of several deductions that homeowners can take advantage of to lower their tax burden.

What is the PMI tax deduction?

The PMI tax deduction allows homeowners to deduct the cost of private mortgage insurance from their taxes. By allowing homeowners to deduct private mortgage insurance payments on their taxes, the PMI deduction lowers the amount of tax that they owe.

Many prospective homeowners aim for a 20% down payment when looking to purchase a home in order to secure the best possible rates. But in some cases, a down payment of that size isn’t feasible. That’s where private mortgage insurance comes in. This type of insurance is often required when borrowers put down less than a 20% deposit on a home. Private mortgage insurance protects the lender against risk should the borrower default on their home loan. PMI rates typically range from .5% to 1.5% of the loan.

When is PMI tax deductible?

There are a few key requirements that you need to meet in order to be eligible for the PMI deduction. This deduction only applies to home acquisition debt, which refers to debt taken on to buy or improve a first or second home. In order to qualify, loans must be taken out after 2006. The PMI deduction doesn’t apply to investment or rental properties.

In order to be eligible for the PMI tax deduction, you also need to itemize your taxes. This means that, instead of taking the standard deduction, you instead deduct itemized expenses in order to reduce your taxable income. You should keep in mind that, depending on how many itemized expenses you have to deduct, the standard deduction ($12,550 for single filers and $25,100 for joint filers in 2021) could be more beneficial.

Income phaseouts for PMI deductibility

In addition to meeting the above requirements, homeowners also need to be below certain income thresholds in order to qualify. If your adjusted gross income is over $100,000, the PMI deduction gradually phases out. Homeowners whose AGI is over $109,000 no longer qualify.

How to claim the PMI tax deduction

If you pay more than $600 in mortgage interest per year, you should receive a form 1098 from your mortgage holder. This form will include information about your loan, including the amount that you’ve paid in private mortgage insurance. You can deduct mortgage insurance premiums on Schedule A (Form 1040), line 8d on your tax return. There’s no limit to the amount you can deduct, so you can claim the entire amount that you’ve paid in PMI in a given tax year.

The PMI deduction isn’t a permanent part of the tax code, so it could change in the future. But up to at least the 2021 tax year, eligible homeowners can take advantage of this deduction.

How much can you save on taxes?

How much you can save on taxes through the PMI deduction depends on how much you spend on private mortgage insurance in a given year. It also depends upon your income, tax rate, and any other itemized deductions that you may be taking advantage of. Some taxpayers are able to save a few hundred dollars by deducting PMI expenses.

It’s important to keep in mind that, while the PMI deduction can sometimes save taxpayers money, it’s not guaranteed to do so. In some cases, you may be better off with the standard deduction. If you’re not sure which approach is right for you, you may want to seek the advice of a tax professional.

Once you’ve reached 20% home equity, you can request to have the private mortgage insurance removed from your home. In many cases, removing PMI from your loan will save you money, even though you would no longer be able to deduct PMI on your taxes.

Other tax breaks for homeowners

In addition to the PMI deduction, there are a few other tax breaks that homeowners should keep in mind for the 2021 tax year. These include:

  • Mortgage interest deduction: Homeowners can deduct the interest they paid on their home loan, up to certain limits. For loans taken out from October 14, 1987, through December 15, 2017, you can deduct interest on up to $1 million, and for loans taken out after December 15, 2017 you can deduct interest on up to $750,000.
  • SALT deduction: The state and local tax (SALT) deduction allows homeowners to deduct certain state and local taxes, up to a limit of $10,000.
  • Mortgage points: If you paid mortgage points in order to reduce the rate of your loan, you can also deduct these on your tax return.

The bottom line

For many homeowners, the PMI deduction can save them a few hundred dollars on their tax return. As long as you meet the loan and income requirements and are already itemizing your deductions, taking advantage of the PMI deduction is a handy way to lower your tax burden.