If you’ve read Nolo’s Essential Guide to Buying Your First Home or How to Buy a House in California, you know that homeowners can deduct the amount they pay in mortgage interest each year at tax time. You may also have read that private mortgage insurance (PMI) was, from 2007 to 2012, included in that deduction.
What is PMI? Not all homeowners must buy it – it’s coverage that lenders typically require home buyers who paid less than 20% down to purchase in order to benefit the lender. The insurance reimburses the lender if the homeowner cannot make the regular mortgage payments.
This allowance of a PMI deduction was ended at the end of 2011. However, the fiscal cliff deal (“H.R. 8″) reached on January 1, 2013 extended it for two additional years, meaning retroactively for 2012 and through the end of 2013.
The PMI deduction is phased out by 10% for each $1,000 by which your adjusted gross income (AGI) is over $100,000. That means that you can’t use the deduction if your AGI exceeds $110,000.