If you’re among the customers who've read Nolo’s Essential Guide to Buying Your First Home or How to Buy a House in California, you know that homeowners can, each year at tax time, deduct from their income taxes the amount they pay to their bank or lender in mortgage interest . You may also have read that private mortgage insurance (PMI) can be included in that deduction -- but that this deduction expires every year.
What is PMI? Not all homeowners must buy it – it’s coverage that lenders typically require of home buyers who put down less than 20% toward the purchase, and took out a loan for the rest. The insurance reimburses the lender if the homeowner cannot make the regular (probably monthly) mortgage payments.
Although Congress waited until the last minute, it acted on December 19, 2014 to extend the PMI deduction that was in effect for 2014, now good through 2015.
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. Or, if you're married but filing a separate return, the phaseout would be $500 for each $1,000 by which your AGI exceeds $50,000, with no deduction if your AGI is over $55,000.