Thanks to private mortgage insurance, you can get a house by putting up as little as 3 to 5 percent of the price. In fact, your lender will require you to have PMI if you don't have at least a 20 percent down payment. This insurance protects the lender from losing money if you fall behind on your payments. Once upon a time, you could take a tax break for PMI premiums. However, unless your home brings in rent, this relief expired Dec. 31, 2011.
Claiming the Deduction
You cannot reduce your taxes with premiums you paid after Dec. 31, 2011, but you can amend already filed tax returns if you left the deductions out. If you want the deductions you earned before Jan. 1, 2012, file a Form 1040X along with a changed Schedule A for each year you wish to claim. The deadline is three years after you sent in the original return or two years after you paid the tax you are trying to cut.
The deduction is available if you took out a mortgage to buy your main home or a second home and you obtained private mortgage insurance after Dec. 31, 2006. Refinancing your home mortgage counts as debt to get a home but only up to the amount of your original mortgage. If you paid monthly, only the premiums paid between Jan. 1, 2007, and Dec. 31, 2011 can be deducted. If you paid the whole cost of insurance up front, you can deduct only for the months you had the insurance through Dec. 31, 2011.
Amount of Deduction
The amount you can deduct depends on your income for the years you claim. For 2011, a married couple who files jointly and earns $100,000 or less after taking all deductions can deduct all of the premium. The benefits slide as your income climbs; if it was $109,000 in 2011, you get no deduction for PMI. If you paid for all of the insurance up front, you can't take all of the deduction at one time. Instead, you must divide the total payment by the shorter of the number of months in your mortgage or 84 months. Then you multiply times 12 months for the year you claim the deduction.
Renting Your Home
If you rent your home out, you can claim a tax break for your premiums using Schedule E of your Form 1040. However, the break only offsets the rent your home brings in; it is not a deduction from all of your income. Therefore, you can use PMI premiums to reduce rental income, even though the deduction you used to claim on Schedule A has expired.
- Federal Reserve Bank of San Francisco: Private Mortgage Insurance
- IRS: Publication 936, Home Mortgage Interest Deduction
- IRS: Premiums for Mortgage Insurance May Be Deductible
- IRS: Internal Revenue Bulletin: 2012-13
- IRS: Rental Expenses Versus Passive Activity Losses ...
- IRS: 2011 Instructions for Schedule E
- IRS: Nine Facts on Filing an Amended Return
- Stockbyte/Stockbyte/Getty Images
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