The ability to deduct mortgage insurance from your taxes has been extended to include 2011. The recent Tax Bill passed by congress near the end of December makes the deduction official, ending concerns that the deduction would disappear this year.
What is Mortgage Insurance?
Mortgage Insurance is generally required for borrower’s who obtain a mortgage with less than a 20% down payment. Premiums are based on a percentage of the total loan amount annually and spread throughout the year as a part of the monthly mortgage payment. The premium is commonly referred to as Mortgage Insurance Premium, or MIP. Mortgage insurance is a policy to protect the mortgage lender for the value of the outstanding mortgage loan amount in the event that the borrower is unable to make mortgage payments, no matter the reason. The typical beneficiary of the policy in this case is the bank, who is taking on added risk by allowing a borrower to obtain a loan with less than the ideal down payment amount. The borrower pays the monthly premium allowing them to purchase the home with less money down.
Tax Deduction for Mortgage Insurance
Eligible borrowers with adjusted gross incomes up to $100,000 may be able to deduct 100% of the Mortgage Insurance premiums paid in 2011. Deductions are phased out in 10% increments for borrowers with adjusted gross incomes between $100,000 and $109,000. The recently passed Tax Bill only extends the deduction in 2011 and it remains to be seen if it will be extended again in 2012. Early in the legislative debate on the bill, there were some who favored eliminating the deduction. In the end, however, congress included the deduction language in the final passed bill.
Mortgage Insurance was first made a tax deductible expense as part of the Mortgage Forgiveness Debt Relief Act of 2007. It applied to mortgage insurance policies written after January 1, 2007 and has been extended every year since then. Originally, this was supposed to be a temporary deduction, but it has been extended several times since the original act was passed.
While the amount of the tax deduction for mortgage insurance is not nearly as big as the deduction for the interest paid on the mortgage, in the short time it has been in effect it has come to be seen as a necessary deduction to support homeownership. Prior to its extension for 2011, many in the lending and real estate industry voiced concerns that the failure to extend the deduction would further pressure homebuying at a time when support was most needed. By extending the deduction, the market maintains a status quo from recent years, allowing the recovery of the real estate industry to continue without additional negative influence.
Consult With A Mortgage Expert
If you have questions about Mortgage Insurance, please ask us by emailing email@example.com. Whether you have an existing mortgage and want to know about your mortgage insurance premiums or if you are considering a purchase and want to know how mortgage insurance will effect your payments, please contact us and we’ll be happy to provide you specific information about your personal situation. In some cases, mortgage insurance premiums can be stopped when the 20% threshold is reached through payments and appreciation, but the homeowner is generally responsible for requesting that the insurance be terminated. Knowing your situation will help you to make the wisest financial decisions and we are here to help.