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Mortgage Insurance Tax Deduction Frequently Asked Questions
Eligible borrowers with mortgage loans originated in 2018, 2019, 2020 and 2021 and who itemize may qualify for the mortgage insurance (MI) premium tax deduction. Congress may choose to restore or further extend the deduction for 2022 and 2023 in future legislation, and this page will be updated to reflect any status changes.
1. What is private mortgage insurance (MI) tax-deductibility and how does it work?
In 2020, Congress restored the itemized deduction on federal tax returns for the cost of private MI paid by eligible borrowers. This tax deduction law applies to borrower-paid MI certificates issued by Arch MI. The law is effective for amounts paid for MI attributable to the 2018, 2019, 2020 and 2021 tax years. At this time, Congress has not extended the tax deduction for 2022 or 2023.
2. What is the reason for this MI tax-deductibility legislation?
The federal government supports home ownership and helps make home ownership more affordable for more homebuyers through this MI tax deduction.
3. How does the MI tax deduction work?
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.
4. What kinds of loans qualify for the deduction?
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” 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 upfront payment plans, borrowers should consult with a professional tax adviser to determine the amount of the MI premium eligible for the tax deduction.
5. What savings amount can a typical homeowner with MI expect?
Individual savings will vary, depending on the size of the loan and a borrower’s adjusted gross income and tax bracket.
6. How many people in the United States use MI?
Millions of people use private MI every year — it’s an important factor in facilitating home purchases for first-time homebuyers, low- to moderate-income borrowers and minority and immigrant borrowers. Most lenders require a 20% down payment for a home loan, which is the single biggest obstacle prospective homebuyers face. MI makes it possible for more families and individuals to purchase homes with low down payments that meet their budgets.
7. How long will this tax deduction be available?
The current tax deduction legislation applies to MI premiums attributable to the 2018, 2019, 2020 and 2021 tax years. Congress has the power to extend the tax deduction to later years through future legislation.
1. Is the deduction only for first-time homebuyers?
No. The deduction applies to existing homeowners as well as to first-time homebuyers.
2. Does the MI tax deduction apply to new purchases only? Are refinances also included?
The MI tax deduction applies to purchases and refinances up to the amount of acquisition indebtedness as defined in the Internal Revenue Code. 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 adviser to determine the amount of MI premium eligible for the tax deduction.
3. Are there any occupancy restrictions?
The deduction applies to a “qualified residence.”. 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 tax code criteria.
4. Are investor loans eligible?
No, investor loans are not eligible.
5. Is there a loan amount limit?
No. The available tax deduction is only limited by the taxpayer’s income.
6. Is deductibility applicable for all loan types?
There is no differentiation among loan types. But the premium has to be for what is considered “acquisition indebtedness” on a “qualified residence.”
7. When refinancing a piggyback loan, for purposes of the deduction, is the original loan amount considered the sum of the two mortgages or only the primary mortgage amount without the second lien included?
The loan amount applicable to the deduction would be the sum of the two mortgages, up to the amount of “acquisition indebtedness.”
8. Do tax deductions have to be itemized on tax returns in order to take the deduction?
Yes. In order to take advantage of the MI tax deduction, borrowers must include their MI premium payment information on an itemized tax return.
1. How does the deduction apply to Single Premium certificates, in which the premium is financed and rolled into the mortgage loan amount? Can the premium be deducted in one calendar year?
The amount of the MI premium attributable to 2018, 2019, 2020 and 2021 is tax deductible. 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 adviser to determine the amount of the MI premium eligible for tax deduction in any given year.
2. Questions regarding MI tax deductibility for a loan?
Arch MI cannot provide tax advice. Please consult a tax adviser 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 IRS may reach different conclusions for these issues in future regulatory action or guidance.