YOU ASK:

Is private mortgage insurance (PMI) premium tax deductible?

WE ANSWER:

Not always. It depends on one's credit standing and in what tax bracket he belongs, as well as how the property is being used.

There is already a new law that states that there are some cases where private mortgage insurance premiums are tax deductible. This law specifies that mortgage insurance payments for a coverage that is provided on 2007 are tax deductible.

Also, if you refinance a mortgage (that begun before the year 2007) during or after the year 2007, your mortgage payments (for the acquisition loan amount of the property) is tax deductible. For instance, if you purchased a house before 2007 with a home acquisition amount of $125,000, your premiums may not be tax deductible under IRS rules and regulations.

However, if you bought a house before 2007 with a home acquisition amount of $125,000, and, after 2007, you decided to refinance the mortgage and you took out a loan for $140,000. The tax deductible portion would be the premiums you would have paid for the $125,000, and not on the new loan amount of $140,000.

It specifies that you need to buy this coverage from the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) or the Rural Housing Service. You may also purchase it from private mortgage insurance companies in connection with your mortgage.

Mortgage insurance premiums are deductible depending on your adjusted gross income. If your income is more than $100,000 (or $50,000 if you are married and filing separate tax returns), then allowable tax deductions are decreased. When you have an adjusted gross income of $109,000 (or $54,500 if you are married and filing separately), then there are no allowable tax deductions for your mortgage insurance premiums.

Another consideration is whether the property is your primary dwelling or is a house where you stay only during vacations. If that house is being rented out, the premiums may not be tax deductible.

You may claim PMI premiums for tax deduction under the "Interest You Paid" section of your tax deductions form.

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