Due to Congressional Inaction, the Mortgage Insurance Deduction Ended
At the end of each year, a flurry of bills flow through Congress that extend tax-related laws that have a year-to-year lifespans. The Tax Relief and Health Care Act of 2006 is one such law, which has provisions ranging from tariffs on shoes and chemicals to the income tax deduction for homeowners who pay private mortgage insurance (PMI) and federal mortgage insurance (called “MIP”).
In 2011, Congressional bickering resulted in the passage of very few bills, including an extension to the Tax Relief and Health Care Act of 2006. Unless Congress acts, people who itemize on their taxes and pay mortgage insurance will not be allowed to deduct their insurance premiums on their 2012 income taxes. This will result in an increased tax bill of $600 to $1,000 per family, according to one estimate.
Mortgage Insurance Deduction in 2011
According to the IRS, homeowners can deduct PMI premiums paid or accrued during the 2011 tax year on Form 1040, Schedule A, Line 13. The mortgage servicer or PMI provider reports the amount paid in Form 1098, box 4, which is mailed to the homeowner.
For the 2011 tax year, the following qualifications are required to deduct PMI:
- Paid or accrued January 1, 2011, to December 31, 2011
- Borrower bought or refinanced home
- The adjusted gross income (AGI) is $100,000 or less ($50,000 if married filing separately): full deduction
- The AGI more than $100,000 ($50,000 if married filing separately): reduced deduction
- The AGI more than $109,000 ($54,500 if married filing separately): no deduction
According to the IRS, payments made during 2011 for qualified mortgage insurance can be treated as home mortgage interest. The insurance must have been in connection with home acquisition debt, the insurance contract must have been issued after 2006, and the taxpayer must have paid the premiums before 2012 for coverage in effect during 2011.