(NOTE: if you’re looking for a list of itemized deductions, go back to the 1040 summary page here)
When we bought our first house, the payments that frustrated me more than cat trying to catch a laser pointer were the Mortgage Insurance Premiums. While all the other payments felt more or less justified, Mortgage Insurance came as a punishment.
I could rant about this for a while, but since this is a tax site, I’m sure what you came here for helpful information. Specifically, is mortgage insurance tax deductible?Yes. There is a Mortgage Insurance deduction.
If you pay mortgage insurance premiums on a monthly basis as part of your house payments, that monthly amount is deductible. To make things easy, it should be on your annual 1098 statement provided by your bank, located in Box 4. If it’s not, try giving you bank a call to get that resolved (and have fun running through the labyrinth of phone messages and employees who “don’t deal with that” despite the phone system insisting they do). If they are less than helpful, you can still deduct the premiums, just make sure you have good documentation on the amounts you paid.
Prepaid Mortgage Insurance Premiums
One of the top requirements for our House #2 was to have no monthly mortgage insurance. I didn’t care about a deduction: seeing that monthly amount sucked out of my bank account was more than I could handle. Since we still didn’t quite put down enough to get out of mortgage insurance (you better not be judging me), we decided to pay the full amount of the mortgage insurance premiums up front.
So does the Mortgage Insurance Deduction cover these prepaid amounts?
Yes. And no.
The Mortgage Insurance Deduction does allow you to front load your payments, but it doesn’t allow you to front load the deduction. If you prepay the full amount rather than taking the deduction in the year that you paid the premiums, you’ll have to allocate the paid amount over the shorter of:
- The stated term of the mortgage, or
- 84 months, beginning in the month the insurance was obtained
I might have been financially prudent to prepay my mortgage insurance (or not), but the deduction will still span over at least 7 years. And no, the bank will not remind me of the deduction anytime after year one.
So good luck remembering to actually take the deduction.
The Mortgage Insurance Deduction is only fully allowed if your Adjusted Gross Income (1040 line 38 in 2014) is less than 100,000. If you make between 100,000 and 109,000, the amount of the deduction is phased out using Mortgage Insurance Premiums Deduction Worksheet (no one ever accused accountants of coming up with catchy names), which can be found in your 1040 Schedule A instructions.
These limitation amounts are cut in half if you’re Married Filing Separately. They are otherwise unchanged if you are Single or Married Filing Jointly, which sensible married people will consider a bit ridiculous (See The Marriage Penalty)