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Homeowners are happy about this last-minute tax deduction extension

is pmi deductible in 2018
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Feb. 15, 2018.

It’s a mouthful, but it’s going to benefit homeowners just in time for tax season. The mortgage insurance premium deduction extension was one of 30 tax provisions President Trump agreed to extend on February 9, 2018, when he signed H.R. 1892, the Bipartisan Budget Act of 2018.

The mortgage insurance deduction, along with dozens of other allowable claims, had originally expired on December 31, 2016. The extension can be a money-saver for homeowners, Jay Crowell, CMP, Senior Vice President at Cornerstone Home Lending, says. “It will reduce their tax expense by reducing their tax with the ability to write off the interest.”

“This is one of those deductions that gets reviewed annually,” Sharla J. Ellis, Cornerstone Senior Vice President, says. “It’s great that Congress extended this deduction another year.” Under the extension, homeowners who pay private mortgage insurance (and meet the requirements) will be able to deduct their premiums as interest on their tax returns for the 2017 tax year.

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How to take advantage of the mortgage insurance deduction extension

Tax forms must be sent by January 31 each year. This includes Form 1098, which homeowners used to report their mortgage insurance premiums.

If you filed before January 31, 2018:

  • Check your 1098. The previous version of Form 1098 was issued before the extension was passed in February 2018. It directed homeowners to only fill in their mortgage insurance premiums (MIP) in Box 5 of the 1098 if section 163(h)(3)(E) applied the previous tax year.
  • Get a new form. Homeowners who have already filed their 1098 without the MIP paid in 2017 will be sent a new form, where applicable.
  • Fix any errors and resend. Now that the MIP deduction has been extended, Forms 1098 must be corrected and resent. The amount of MIP paid for 2017 will be added back in Box 5. Crowell and Ellis suggest homeowners contact their tax advisor or CPA for help amending their tax return to make sure they take advantage of the money-saving benefit.
  • Don’t sweat it if you filed correctly. If Form 1098 was already filed with the MIP paid in 2017, no action needs to be taken.

If you didn’t file before January 31, 2018:

  • Check your 1098.
  • Get a new form, if necessary.
  • File to include the MIP deduction in Box 5.

Along with the mortgage insurance deduction extension, other extended tax breaks for individuals and families for the 2017 tax year include mortgage debt exclusion, tuition and fees deduction, non-business energy property credit, and relief for victims of disaster, among others.

Got questions? We’ve got answers. Find a Cornerstone office near you.

How much could the mortgage insurance deduction save you?

Mortgage insurance, sometimes referred to as private mortgage insurance or PMI, is an amount charged to buyers who are unable to make down payments of at least 20 percent, Ellis explains. It protects the lender from losses if a borrower were to default on a loan. “The insurance policy can be issued by a private mortgage insurance company (conventional loans) or by the Federal Housing Administration (FHA loans), the Department of Agriculture’s Rural Housing Service (USDA loans), or the Department of Veterans Affairs (VA loans),” Ellis says.

Mortgage insurance can be paid as an initial upfront cost, in addition to future monthly payments. Crowell also explains that some mortgage insurance programs are charged only as an upfront cost with no monthly or reoccurring payments. Both of these scenarios may be tax deductible within the extension.

For homeowners who put down less than 20 percent down and are paying PMI:

  • The last-minute extension allows mortgage insurance premiums to still be 100 percent tax-deductible for households that have an adjusted gross income no greater than $100,000.
  • When the extension expires and the mortgage insurance deduction is once again eliminated for 2018, qualifying homeowners may miss out on several hundred dollars in annual savings.
  • Click here to learn more about PMI and to find out how to drop your payment.

Ellis reminds homeowners to be aware of limits on the deductions that relate to adjusted gross income (AGI). “For AGI over $100,000, the deduction is reduced, and for AGI over $109,000, premiums are not deductible,” she says.

While the IRS is currently reviewing H.R. 1892 signed on February 9, it’s likely that updated Forms 1098 will be required for all homeowners who file. (Suffice it to say, the IRS is busy. As of early February 2018, 18.3 million tax returns had been received, with 17.9 million returns processed.) Most mortgage companies plan to stay one step ahead of the tax deduction reversal. Many lenders will issue their borrowers corrected 1098s before the IRS mandates this change.

Helping homeowners with their tax returns is but one of the ways we make buying and owning a house easy. Contact your loan officer for any questions or concerns about filing your corrected 1098.

As a result, Cornerstone Home Lending, Inc. and its affiliates do not provide tax advice.

For educational purposes only. Please contact a qualified professional for specific guidance.

Sources deemed reliable but not guaranteed.