Mortgage insurance premiums are subject to increase and they can greatly affect the monthly budget. The average premium is between $100-200 per month. However, you can be eligible for a mortgage insurance premium deduction at the end of the tax year.
What is Mortgage Insurance?
A lender usually asks for a private mortgage insurance as a guarantee in case the borrower defaults on repayment. The insurance amount has to be paid by buyers that cannot put 20 percent as down payment. The insurance policy is issued by private companies and they are the ones eligible for the mortgage insurance premium deduction.
Which Loans Qualify?
Only loans that have been taken after January 1st 2007 are eligible for the mortgage insurance premium deduction. The insurance policy should be bought to pay off the home acquisition debt or the cost of a second home. The home acquisition debts are those whose proceeds are used to buy a new house or remodel a previously owned residence.
The second house should not be rented out and must only be for personal use such as a holiday home. There is still a chance of qualifying for a mortgage insurance premium deduction even if you use the second home for income-generating purposes. However, those who have taken out home equity loans or cash-out refinances cannot apply for the mortgage insurance premium deduction. Only refinance loans that are up to the original mortgage amount are included.
Limitations on Income
You cannot claim the mortgage insurance premium deduction if your gross income is exceeding $109,000 for a single individual or $54,500 for a married individual filing their tax returns separately. The deduction phases out for lower income limits so you have to subtract 10 percent of every thousand dollars exceeding the minimum amount.
How to Claim the Deduction
The premiums paid on mortgage insurances are reported on the Form 1098. This can be taken from the lender at the end of the tax year and completed according to your profile. There is no limit on the amount of deduction that can be claimed.