Can You Deduct Mortgage Insurance Premiums for 2023?

A tax deduction has historically been available for mortgage insurance premiums. This insurance includes private mortgage insurance (PMI) and premiums for loans backed by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and the Department of Agriculture (USDA). It is required when a homebuyer makes a down payment of less than 20%, and the ability to deduct these premiums can lower a homeowner’s taxable income.

Status of the Deduction for the 2023 Tax Year

For homeowners filing their 2023 income tax return in 2024, the deduction for mortgage insurance premiums is no longer available. The provision in the tax code allowing this deduction was not extended by Congress to cover the 2022 or 2023 tax years. This tax benefit has a history of expiring and being retroactively renewed, but that has not occurred for the most recent tax years.

The last law authorizing the deduction was the Consolidated Appropriations Act, 2021, which extended the benefit through the 2021 tax year. Taxpayers cannot claim a deduction for any mortgage insurance premiums paid after December 31, 2021. The Internal Revenue Service (IRS) confirms in Publication 936 that this itemized deduction has expired.

Eligibility Requirements When the Deduction Was Active

When the mortgage insurance deduction was available, such as for the 2021 tax year, taxpayers had to meet several criteria to qualify. A primary requirement was the need to itemize deductions on Schedule A of Form 1040. If a taxpayer’s total itemized deductions were less than the standard deduction for their filing status, they would not benefit from claiming the mortgage insurance premiums.

Income limitations also played a significant role. The deduction was subject to a phase-out based on the taxpayer’s Adjusted Gross Income (AGI). The reduction in the deductible amount began for taxpayers with an AGI exceeding $100,000 ($50,000 for those married filing separately), and the deduction was eliminated for taxpayers with an AGI over $109,000 ($54,500 for married filing separately).

The rules specified that the insurance must have been for a mortgage on a qualified primary residence or a second home. The loan had to be considered “acquisition indebtedness,” meaning the funds were used to buy, build, or substantially improve the home. The insurance contract also had to be issued after December 31, 2006.

Calculating and Reporting the Deduction for Prior Years

For taxpayers amending a return for a year when the deduction was valid, the total amount of mortgage insurance premiums paid is reported by the lender in Box 5 of Form 1098, the Mortgage Interest Statement.

The calculation for the deductible amount was tied to the AGI phase-out rules. For every $1,000 that a taxpayer’s AGI exceeded $100,000, the total amount of premiums paid was reduced by 10%. For example, if a taxpayer with an AGI of $105,000 paid $2,000 in premiums, their AGI is $5,000 over the threshold. This triggers a 50% reduction, meaning their deductible amount would be reduced to $1,000.

Once calculated, the final deductible amount was reported on Schedule A (Form 1040). The amount was entered on the line designated for mortgage insurance premiums, which for the 2021 tax year was line 8d.

State-Level Mortgage Insurance Deductions

While the federal deduction for mortgage insurance premiums has expired, some homeowners may find tax relief at the state level. State tax laws do not always conform to federal rules, and some states may offer their own, separate deductions for these premiums. The availability and rules for such a deduction are determined by each individual state’s tax code.

To determine if this deduction is available in a specific state, taxpayers should review the instructions for their state’s income tax forms. Consulting with a tax professional who is knowledgeable about local tax regulations can also provide clarity.