The Fiscal Cliff is averted. The American Taxpayer Relief Act of 2012 was signed into law by President Obama on Wednesday, avoiding the tax hikes and cuts in spending that were on the horizon.
One of the lesser known, or at least lesser discussed, provisions in the Act is that it extends the ability to deduct the cost of mortgage insurance on a qualified personal residence. In years past, Ohio residents that had not choice but to take a mortgage with PMI (Private Mortgage Insurance) were permitted to deduct the cost of that PMI. Now they have that luxury through 2013.
A few important things to note:
- This covers Monthly (the most common), Single Premium, and Split Premium Mortgage Insurance. Opinions vary on whether or not Lender Paid Mortgage Insurance (LPMI) is deductible, as the IRS has not provided clarification.
- Loans used for “acquisition indebtedness” qualify for the PMI tax deduction
- this includes purchase loans and refinance loans, up to the original acquisition indebtedness.
- All loan types should be eligible (Fixed, ARM, etc.)
- The deduction applies to “qualified residences” as defined by the Internal Revenue Code. Generally, that includes your primary residence and a second home (non rental). Investment properties are not eligible.
- The amount you are able to deduct is phased out at higher income levels (see chart below)
Ohio PMI Deduction Income Limits
| Single OR Married, Filing Jointly | Allowable PMI Premium Deductions | Married, Filing Separately | Allowable PMI Premium Deduction |
|---|---|---|---|
| $0 - $100,000 | 100% | $0 - $50,000 | 50% |
| $100,000.01 - $101,000 | 90% | $50,000.01 - $50,500 | 45% |
| $101,000.01 - $102,000 | 80% | $50,500.01 - $51,000 | 40% |
| $102,000.01 - $103,000 | 70% | $51,000.01 - $51,500 | 35% |
| $103,000.01 - $104,000 | 60% | $51,500.01 - $52,000 | 30% |
| $104,000.01 - $105,000 | 50% | $52,000.01 - $52,500 | 25% |
| $105,000.01 - $106,000 | 40% | $52,500.01 - $53,000 | 20% |
| $106,000.01 - $107,000 | 30% | $53,000.01 - $53,500 | 15% |
| $107,000.01 - $108,000 | 20% | $53,500.01 - $54,000 | 10% |
| $108,000.01 - $109,000 | 10% | $54,000.01 - $54,500 | 5% |
- Borrowers who itemize deductions are able to reduce their overall taxable income in the same manner as mortgage interest.
Please note that I cannot provide tax advice. You should consult your tax advisor to determine if you are eligible to deduct PMI.
Ohio residents that would like to review their options for a home purchase or refinance with Private Mortgage Insurance (PMI) can complete the simple, free Ohio Mortgage Interest Rate Quote form.
