Is FHA Mortgage Insurance Tax-Deductible?

Mortgage Forgiveness Debt Relief Act of 2007 expired at the end of 2011.
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One of the benefits of homeownership is the ability to deduct certain housing costs on your tax return. If you have a Federal Housing Administration loan, you can deduct permissible expenses, which include mortgage interest paid throughout the year and real estate taxes. As of the date of publication, mortgage insurance is not a tax-deductible item for the tax year 2012.

The Basics

The FHA insures home loans made by approved lenders. FHA insurance is designed primarily for borrowers on single-family, principal dwellings, but the FHA can also insure healthcare facilities and multi-family properties. It reimburses lenders in the event of default. The federal insurance program allows lenders to finance otherwise risky borrowers. The FHA requires a minimum down payment of 3.5 percent and has flexible underwriting guidelines. The loans are widely used by first-time buyers and by borrowers with credit challenges and low to moderate incomes.


As an FHA borrower, you pay at closing the upfront mortgage insurance premium (UFMIP) and an annual premium for the insurance protection. You make monthly payments, which are included with the mortgage payment. The monthly fee is for the FHA's Mutual Mortgage Insurance Fund, which is what the agency draws from to pay lender claims. Neither of these payments may be deducted on your income tax return.


In an effort to bolster a collapsing housing market, Congress passed a law that temporarily made mortgage insurance deductible for homeowners who itemized rather than claiming the standard deduction. The Tax Relief and Health Care Act of 2006 applied to private mortgage insurance, which protects conventional loans not insured by a government agency, such as the FHA or the Veterans Administration. The Mortgage Forgiveness Debt Relief Act of 2007 extended the deduction to include federally backed loans. Lawmakers continued to renew the tax benefit through 2011 because of the housing market's slow recovery, says.


You must itemize the permissible deductions on Schedule A of IRS 1040. Mortgage interest on the FHA loan -- which you prepay at closing for the days remaining in the month in which you buy or refinance your house and pay monthly thereafter -- is entered on line 10. Real estate property taxes paid for the year are reported on line 6. Itemizing and writing off these deductions typically makes sense when the expenses you list on the return exceed the amount of the standard deduction for the year.

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