Mortgage insurance is tax-deductible through 2010!
Thanks to a new law, your mortgage insurance (MI) premiums may now be tax-deductible through the year 2010. Below are answers to commonly asked questions regarding the new law.
Please note: MGIC cannot provide tax advice. You should consult your tax advisor to ascertain whether you are eligible to take this deduction. The answers to these questions are based on an interpretation of the language of the statute, the Joint Committee on Taxation’s Technical Explanation of the statutory language, and present law. The Internal Revenue Service (IRS) will issue guidance interpreting the new provision, and could reach different conclusions for some of the issues raised.
FAQs
Who qualifies for this itemized deduction?
Households with adjusted gross incomes of $100,000 or less will be able to deduct 100% of their MI premiums. The deduction is reduced by 10% for each additional $1,000 of adjusted gross household income, phasing out after $109,000. (Details below.)
Married individuals filing separate returns who have adjusted gross incomes of $50,000 or less will be able to deduct 50% of their MI premiums. The deduction is reduced by 5% for each additional $500 of adjusted gross income, phasing out after $54,500. (Details below.)
The deduction is not restricted to first-time homebuyers.
Adjusted Gross Income Limits |
|||
Single OR |
Allowable |
Married, |
Allowable |
| $0 - $100,000 | 100% | $0 - $50,000 | 50% |
| $100,000.01 - $101,000 | 90% | $50,000.01 - $50,500 | 45% |
| $101,000.01 - $102,000 | 80% | $50,500.01 - $51,000 | 40% |
| $102,000.01 - $103,000 | 70% | $51,000.01 - $51,500 | 35% |
| $103,000.01 - $104,000 | 60% | $51,500.01 - $52,000 | 30% |
| $104,000.01 - $105,000 | 50% | $52,000.01 - $52,500 | 25% |
| $105,000.01 - $106,000 | 40% | $52,500.01 - $53,000 | 20% |
| $106,000.01 - $107,000 | 30% | $53,000.01 - $53,500 | 15% |
| $107,000.01 - $108,000 | 20% | $53,500.01 - $54,000 | 10% |
| $108,000.01 - $109,000 | 10% | $54,000.01 - $54,500 | 5% |
Is adjusted gross income calculated before or after deductions?
Adjusted gross income is calculated before itemized deductions, including the MI deduction.
How does the MI tax deduction work?
Borrowers who itemize deductions are able to reduce their overall taxable income in the same manner as mortgage interest.
What types of mortgage loans qualify for the MI tax deduction?
Loans used for “acquisition indebtedness” — that is, money borrowed to buy, build or substantially improve a residence — are eligible, as long as the debt is secured by the same residence.
This includes purchase loans and refinance loans, up to the original acquisition indebtedness. (Money borrowed against the equity in a home or when refinancing a home for any reason other than to buy, build or substantially improve a residence is called “equity indebtedness.”)
When refinancing a piggyback loan originally used to acquire a property, is the original loan amount considered the sum of the first and second mortgages?
Yes, the original loan amount (“acquisition indebtedness”) is considered to be sum of the first and second mortgages.
What types of properties are eligible for tax deductibility?
The deduction applies to “qualified residences,” as defined in the Internal Revenue Code. Generally, that includes the borrower’s primary residence and a nonrental second home. As with mortgage interest, borrowers can deduct mortgage insurance premiums paid on both their primary residence and one other qualified residence each year. Investor loans are not eligible.
How would a premium refund issued during the tax year affect eligibility and the amount of the MI deduction?
Borrowers are only permitted to deduct that portion of their MI premium attributable to a tax year. If the MI is dropped, and a refund is paid, the amount refunded would reduce the amount of MI premium that could be attributable to that tax year and be deducted.
