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How to Get Your PMI Deduction?

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.

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