Mortgage Insurance Tax Deduction
Frequently Asked Questions
Please note: Effective January 1, 2016, MI premiums paid in 2015 and 2016 are eligible for the MI tax deduction. Congress may choose to further extend the deduction in future legislation.
MI Tax-Deductibility Overview
New legislation extends the federal law that provides for an itemized deduction on federal tax returns for the cost of private MI paid by eligible borrowers. This deduction law applies to borrower-paid MI certificates issued by Arch MI.
The new law is effective for amounts paid for MI attributable to the 2015 and 2016 tax years.
The federal government supports homeownership and helps make homeownership more affordable for many homebuyers through this MI tax deduction.
The federal MI tax-deduction allows borrowers with adjusted gross incomes up to $100,000 to take advantage of the full MI tax deduction - 100% of the MI premium for a qualifying loan is subject to this tax deduction.
Borrowers with adjusted gross incomes up to $109,000 can take advantage of a partial MI tax deduction. For each additional $1,000 of gross household income above $100,000, the MI deduction is reduced by 10%, with a cutoff of any deduction at $109,000.
Married persons filing separately, with adjusted gross income of $50,000 or less are each able to deduct 50% of their MI premiums. For each additional $500 of gross household income above $50,000, the MI deduction is reduced by 5%, with a cutoff of any deduction at $54,500.
The deduction applies to existing homeowners as well as to first-time homebuyers. The MI tax deduction applies to MI premiums for purchase and refinance loans for “qualified residences” issued after December 31, 2006, as defined in the Internal Revenue Code. This generally includes the borrower’s primary residence and one other qualified residence. Investor loans are not eligible.
Arch MI’s Monthly, Single, and Split Premium MI payment plans are all eligible for the tax deduction. For up-front payment plans, borrowers should consult with a professional tax advisor to determine the amount of the MI premium eligible for the tax deduction.
Individual savings will vary, depending on the size of the loan and a borrower’s adjusted gross income and tax bracket.
Millions of people use private MI every year – it’s an important factor in facilitating home purchases for first-time homebuyers and low-to moderate-income borrowers, as well as minority and immigrant borrowers. Most lenders require a 20 percent down payment for a home loan, which is the single biggest obstacle prospective homebuyers face. MI makes it possible for people to purchase a home with a down payment as low as 5 percent or even less.
The current tax deduction legislation applies to MI premiums attributable to the 2015 and 2016 tax years. Congress has the power to extend the tax deduction to later years through future legislation.
No. The deduction applies to existing homeowners as well as to first-time homebuyers.
The MI tax deduction applies to purchases and refinances up to the amount of acquisition indebtedness issued after December 31, 2006. This could include first and second mortgages but may not include the full amount of a cash-out refinance. Borrowers with cash-out refinances should consult a professional tax advisor to determine the amount of MI premium eligible for the tax deduction.
The deduction applies to “qualified residence” as defined in the Internal Revenue Code. Generally, that includes the taxpayer’s principal residence and up to one other residence selected by the taxpayer for purposes of the deduction for qualified residence interest. Note – the other residence must be used for personal purposes by the taxpayer for 14 days or 10% of the days during the tax year that the unit is rented for fair value, whichever is greater, among other criteria in the tax code.
No, investor loans are not eligible.
No. The available tax deduction is only limited by the income of the taxpayer.
There is no differentiation among loan types. But the premium has to be for what is considered “acquisition indebtedness” on a “qualified residence.”
The loan amount applicable to the deduction would be the sum of the two mortgages, up to the amount of “acquisition indebtedness.”
Yes. In order to take advantage of the MI tax deduction, borrowers must include their MI premium payment information on an itemized tax return.
Applying the Deduction to Arch MI’s Products
The amount of the MI premium attributable to 2015 and 2016 is tax-deductible. Thus, single premiums (and other upfront premium payments) are amortized over time and cannot be deducted in one calendar year. Borrowers should consult a professional tax advisor to determine the amount of the MI premium eligible for tax deduction in any given year.
Arch MI cannot provide tax advice. Please consult a tax advisor concerning eligibility and application of the MI tax deduction in your particular circumstances under the Internal Revenue Code and the laws of any other taxing jurisdiction. The above information is based on review of statutory language, federal guidance and present law. However, the Internal Revenue Service may reach different conclusions for these issues in future regulatory action or guidance.