The tax season is around and all of us are aware of various taxes related to our home and property. However, it is to be noted here that there are a large number of added costs are a part of the home buying process. But there are a lot of other added costs that come with purchasing a home. One such cost is he Private Mortgage Insurance. This is an insurance which buyers will have to take when they are unable to pay 20% down payment. This is an insurance policy for which you pay but it covers the lender in case you default on your loan.
When did tax deductions on PMI start?
There are PMI payers who can use the insurance payments as a tax deduction when they file their tax returns. The home buyers received this tax deduction as a part of the Tax Relief and Health Care Act of 2006 and it was mainly applicable to PMI policies issued in 2007. However, as a result the real estate market took time to recover, it was extended till 2011.
Who can take advantage of this tax deduction?
The PMI deduction will be available for those policies which have been issued by private insurers as well as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) and the Department of Agriculture's Rural Housing Service.
How will it be counted?
It will be counted as interest payments. You can itemize your deductions and claim this on your taxes. You will have to check out the "Interest You Paid" section in Schedule A to find out the private mortgage insurance deduction. You can claim it on line 13.
How much amount will you be able to claim?
The amount that you will be able to claim as your tax deductions in respect to your PMI will be mentioned in box 4 of the Form 1098.
What requirements do you have to meet?
There are certain requirements which you need to meet while claiming these deductions:
- You will be able to claim the deduction only if you took out the mortgage on which you pay PMI on or after Jan. 1, 2007. You should also note that PMI premiums on new mortgages issued through 2011 will also qualify for the tax deduction.
- Apart from this, if you refinanced your home on or after Jan. 1, 2007, you also qualify for the PMI deduction on that loan. However, the mortgage insurance deduction will only apply to refinances up to the original loan amount and to any extra cash.
- You may be able to deduct PMI payments on a second home loan if it must have been issued in 2007 or later.
- However, if the second home is a rental or investment property, then you won’t be able to claim tax deductions.