If you paid a really big upfront mortgage insurance premium at the closing table, you may be able to recoup some of that cost by deducting your payments on your federal income tax return. There are a couple of caveats, however. You must itemize your taxes to claim it.
Prepaid interest.
If you pay interest in advance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year.
Legislation making PMI tax deductible was passed in 2006. It applied the deduction to policies issued in the 2007 tax year going forward. The measure has been periodically renewed, but expired after the 2021 tax year. Currently, PMI is not deductible for the 2022 or later tax years.
Filers were able to use the deduction on line 8d of Schedule A (Form 1040) for amounts paid or accrued. The deduction expired at the end of 2021, however, so this insurance isn't tax deductible for tax year 2022 and beyond.
The IRS denotes the following as deductible costs: Sales tax issued at closing. Real estate taxes are charged to you when you closed. Mortgage interest was paid when the cost was settled.
You may look for ways to reduce costs including turning to your tax return. Some taxpayers have asked if homeowner's insurance is tax deductible. Here's the skinny: You can only deduct homeowner's insurance premiums paid on rental properties. Homeowner's insurance is never tax deductible your main home.
PMI tax deduction requirements
The deduction is allowed only if the mortgage on which you paid PMI was taken out on or after Jan. 1, 2007. A home refinanced after Jan. 1, 2007 still qualifies for PMI deduction if it was your primary residence.
You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebt- edness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from in- debtedness incurred before December 16, 2017. Future developments.
Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.
Deductible house-related expenses
The costs the homeowner can deduct are: State and local real estate taxes, subject to the $10,000 limit. Home mortgage interest, within the allowed limits.
Homeowners may refinance mortgage debts existing on 12/15/2017 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount of the mortgage being refinanced. The Act repealed the deduction for interest paid on home equity debt through 12/31/2025.
As a homeowner, you'll face property taxes at a state and local level. You can deduct up to $10,000 of property taxes as a married couple filing jointly – or $5,000 if you are single or married filing separately. Depending on your location, the property tax deduction can be very valuable.
There is an income threshold where once breached, every $100 over minimizes your mortgage interest deduction. That level is roughly $200,000 per individual and $400,000 per couple for 2021. Here's how the income phaseout works with the previous income threshold for an individual of $166,800.
Enter the property taxes due in 2024 that you paid for in 2024. We'll calculate whether you get a greater benefit from the Property Tax Credit or the Property Tax Deduction. The maximum Property Tax Credit is $50; the maximum Property Tax Deduction is $15,000.
Property taxes paid on additional homes can also be tax deductible, regardless of the number of homes you own. If you rent out your second home for 14 days or fewer during the year, the rental income is tax free, and you can deduct mortgage interest and property taxes according to the rules for a second home.
Mortgage-interest tax credits can give new homeowners big money. Homeowners who have received a Mortgage Credit Certificate from a state or local government -- usually acquired via a mortgage lender -- can get a percentage of their mortgage interest payments back as a tax credit.
Generally, deductible closing costs are those for interest, certain mortgage points and deductible real estate taxes. Many other settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including: Abstract fees.
The mortgage insurance premium deduction is available through tax year 2020. Starting in 2021 the deduction will not be available unless extended by Congress.
You can deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt for your primary home or a second home. If you are married filing separately, the limit drops to $375,000.
You can deduct a portion of your home-related expenses, including utilities, if you use your home office exclusively for self-employment or business use. This is true whether you're a homeowner or a renter. However, you cannot deduct these expenses if you are an employee who works from home.
Your house payment may include several costs of owning a home. The only costs you can deduct are state and local real estate taxes actually paid to the taxing authority and interest that qualifies as home mortgage interest. These are discussed in more detail later.
Through this deduction, self-employed workers who have a net profit for the year can write off 100 percent of their health insurance premium. They can also deduct premium costs for any spouse or dependents. Keep in mind, though, the deduction is limited to how much you pay out of your own pocket.
Key takeaways
Credit card interest is not tax-deductible for personal expenses. The government stopped allowing a tax deduction for credit card interest in the 1980s. Interest on student loans, mortgages, home equity loans, and business expenses are still tax-deductible.