What Are Qualified Mortgage Insurance Premiums?
Learn how qualified mortgage insurance premiums impact tax deductions, eligibility criteria, and key requirements for homeowners and borrowers.
Mortgage insurance premiums (MIPs) can be a significant cost for homeowners. In some cases, these premiums may be deductible, potentially reducing taxable income. However, eligibility depends on several factors.
Criteria for Qualification
To be deductible, mortgage insurance premiums must meet IRS requirements. The loan must be for a primary or secondary residence—investment properties do not qualify. The mortgage must have been issued after 2006 under the Tax Relief and Health Care Act.
The insurance must come from a recognized provider, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or private mortgage insurers. The premiums must be tied to a home acquisition loan used to buy, build, or substantially improve the property. Refinanced loans may qualify, but only for the portion that represents the original acquisition debt.
The deduction is subject to income limits, and premiums must be reported on Form 1098. If prepaid for multiple years, only the portion applicable to the current tax year is deductible.
Types of Mortgage Insurance That May Qualify
Not all types of mortgage insurance qualify for tax deductions. The IRS allows deductions for certain forms, provided they meet specific conditions.
Private Mortgage Insurance
Private mortgage insurance (PMI) is required for conventional loans when a borrower’s down payment is less than 20%. PMI protects the lender in case of default. Its cost varies based on loan amount, credit score, and down payment.
To be deductible, PMI must be associated with a home acquisition loan. The deduction applies only to premiums paid during the tax year and must be reported on Form 1098. If prepaid, only the portion allocated to the current year is deductible. The deduction phases out at higher income levels.
FHA Mortgage Insurance
FHA loans require mortgage insurance premiums (MIPs), which include an upfront premium—typically 1.75% of the loan amount—and an annual premium that varies based on loan term, loan-to-value ratio, and loan amount.
Only the annual MIP may be deductible, not the upfront premium, unless it is financed into the loan and paid over time. The deductible amount appears on Form 1098 and is subject to income-based phaseouts.
Other Programs
VA loans charge a funding fee instead of traditional mortgage insurance, while USDA loans require an upfront guarantee fee and an annual fee.
The VA funding fee is generally not deductible, as it is a one-time charge. However, the USDA annual fee may qualify if it meets the IRS definition of mortgage insurance and is reported on Form 1098. Borrowers should review loan documents and consult a tax professional to confirm eligibility.
Income Thresholds
The IRS imposes income-based limits on the deduction. These limits are based on modified adjusted gross income (MAGI), which includes adjusted gross income (AGI) plus certain deductions, such as student loan interest and foreign earned income exclusions.
For the 2024 tax year, the phaseout begins at a MAGI of $100,000 for most filers and $50,000 for married individuals filing separately. Once MAGI exceeds these amounts, the deductible portion is reduced by 10% for every $1,000 over the limit. At $110,000 ($55,000 for married filing separately), the deduction is eliminated.
A slight income increase—such as a bonus or capital gains—could push a taxpayer over the threshold, reducing or eliminating the deduction. Strategies like increasing retirement contributions may help preserve eligibility.
Tax Filing Requirements
Claiming the mortgage insurance deduction requires itemizing deductions on Schedule A of Form 1040. This is beneficial for homeowners whose total deductible expenses exceed the standard deduction.
Mortgage insurance premiums must be reported on Schedule A under home mortgage interest and related costs. Lenders provide Form 1098, detailing mortgage interest and often including mortgage insurance premiums. If Form 1098 does not list the premiums, taxpayers must use their own payment records.
Documentation and Recordkeeping
Proper documentation is essential to support any deduction claimed. Without proof, the IRS may disallow the deduction.
Form 1098 is the primary document for tracking mortgage insurance payments. If the lender does not report premiums on Form 1098, taxpayers should keep mortgage statements, bank records, or payment confirmations. Retaining the original loan agreement helps verify that the insurance is tied to a qualified home acquisition loan. Records should be stored for at least three years after filing.
Effects of Refinancing or Loan Modifications
Refinancing or modifying a mortgage can affect the deductibility of mortgage insurance premiums. The new loan must still meet the IRS definition of a home acquisition loan. If part of the refinanced loan is used for other purposes, such as paying off debt, only the portion representing the original acquisition debt remains deductible.
Loan modifications that capitalize unpaid mortgage insurance premiums—adding past-due amounts to the loan balance—may impact deductibility. Borrowers should review updated loan terms and consult a tax professional to determine eligibility.