Tax Tip: Deduct Your Mortgage Insurance Premiums

NEW YORK (MainStreet) — Although not really interest, you may be able to deduct mortgage insurance premiums, which are paid to the Department of Veterans Affairs (VA), the Federal Housing Administration (FHA), the Rural Housing Service (Rural Housing), or private mortgage insurers, as interest on Schedule A.

A deduction is allowed for premiums on contracts issued after Jan. 1, 2007 in connection with acquisition debt on a primary or secondary residence.

Mortgage insurance is a policy that compensates lenders for losses if a borrower defaults on a mortgage loan. It is generally required by lenders when a borrower has less than a 20% down payment.

This deduction was originally allowed for one year under the Mortgage Forgiveness Debt Relief Act of 2007 but has since been extended, most recently through 2011.

The deduction is “phased-out” if your Adjusted Gross Income (AGI) is between $100,000 and $109,000 (between $50,000 and $54,500 if you're married filing separately) at a rate of 10% for each $1,000 ($500 if filing separately), or part thereof, of excess AGI, or Adjusted Gross Income.

If you pay a lump sum premium for several years upfront you must allocate the payment over the term of the loan or 84 months, whichever is shorter.

The amount of qualified mortgage insurance premiums paid is reported in Box 4 of Form 1098, the same form that is used to report mortgage interest paid.

For all the latest tax tips as you prepare your 2010 returns, check out MainStreet's Tax Center, updated daily!

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