Did you know that not deducting private mortgage insurance (PMI) is one of the top mistakes home owners make on their taxes? You have PMI if you put less than a 20% down payment on your home purchase. The deduction expires with tax year 2014 unless Congress renews it.
Here’s what qualifies you- 1.) you got your loan in 2007 or later; 2.) your mortgage is for your primary residence or second home; and 3.) your adjusted gross income is no more than $109,000. You’ll have to itemize and use Schedule A. If your adjusted gross income is between $100,000 and $109,000, use the worksheet included with Schedule A to figure out how much you get to deduct.
How Much Can You Save?
It depends on how much you’re paying. A good rule of thumb industry experts use: You’ll pay $50 a month in premiums for every $100,000 of financing. For example, if you put 5% down on a $200,000 house, you’ll pay monthly PMI premiums of about $125. Increase your down payment to 10%, and you’ll pay less than $80 a month.
The Best Savings of All: Canceling Your PMI
Although the tax deduction is nice — at least while it lasts — getting rid of PMI altogether is even nicer.
You can cancel your PMI when you have 20% equity in your home. Lenders are required to automatically cancel it once you have 22% equity when the equity is achieved by the reducing the mortgage balance through your payments.
– Jon Dawson
This article provides general information about tax laws and consequences, but shouldn’t be relied on as tax or legal advice applicable to particular transactions or circumstances. Consult a tax pro for such advice; tax laws may vary by jurisdiction.