How to Deduct Private Mortgage Insurance (PMI) on Your Taxes
Have you been paying monthly private mortgage insurance (PMI) because your down payment for your home was under 20%? You can get a refund back by claiming the PMI deductions on your income tax returns.
Not making the PMI deduction is one of the top 5 mistakes homeowners usually make on their taxes. This tax deduction will expire in the next tax year unless Congress decides to renew it.
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Who Qualifies for the PMI Deduction?
Not everyone who has PMI premiums can automatically take the tax deduction. To qualify:
- You received your home loan in 2007 or later.
- Your mortgage has to be for your primary dwelling or a second house that is not rented out.
- Your adjusted gross income (AGI) is no not over $109,000. The deduction phases out when your AGI is over $100,000 ($50,000 for married couples who are filing individually) and goes away totally if your AGI is over $109,000 ($54,500 for married couples filing individually).
How to File for the PMI Deduction
You will need to itemize the PMI deduction and use the Schedule A form.
Put the amount of PMI paid last year on line 13 (if your income is under $100,000). Exclude any premiums that have been pre-paid for this year. Remember taxes are based on last year’s income and expenditures, therefore this year’s PMI payments don’t apply even if you pre-paid them last year.
For those whose AGI is between $100,000 and $109,000, the worksheet that comes with the Schedule A form can be used to figure out your allowable deductions.
How Much Can You Save?
This will depend on how much you are actually paying.
A guideline the experts use is – for every $100,000 of financing, you usually pay premiums of $50 per month. Remember that the down payment amount, kind of loan and the requirements of the lender will all impact the actual cost.
Here’s an example – say on a $200,000 house you put down 5%, your PMI monthly premiums will be around $125. If your down payment was 10%, your PMI premiums will be less than $80 per month.
What impact does this have on your income taxes? For instance, if your AGI is $100,000, you purchased a $200,000 house and your deposit was 5%. You also paid $125 in PMI premiums for 12 months ($1,500). PMI deduction will cut your taxable income by $1,500. Those in the 15% tax bracket will save ($1,500 X 15%) or $225 on their tax bill. Those in the 25% tax bracket will save ($1,500 X 25%) or $375.
File With TurboTax and Get This Deduction
TurboTax Online is developed with do-it-yourself filers in mind. We guide you step by step with simple, plain-English questions and apply the appropriate tax laws in the background.
We also do the math and fill in all the right tax forms. TurboTax will even recommend the best choices for you when it comes to filing status, deductions and credits, and other areas that affect your taxes.
Plus, we check your return for errors and tell you how to fix them. And if you’re ever unsure of an answer, or need some expert advice on your taxes, you can talk one-on-one with one of our highly-skilled tax professionals for free.
They even have a free tax refund calculator available that allows you to know the amount of money that you will be getting back in your tax refund. Their online filing services has the ability to import your W2 information into your tax return so you can avoid worrying about your forms being delivered via snail mail.
Cancel Your PMI to Get the Best Savings
The tax deductions are good when you can get them, but eliminating your PMI altogether is even better.
Once you have 20% equity in your home you can cancel your PMI. Lenders have to cancel it once it reaches 22% equity. Are you close to that threshold?