Private Mortgage Insurance Itemized Deduction is Back - For Now

A time ago, we had written about the “on again and off again” itemized deductibility of private mortgage insurance.  It’s been a real saga.  Let’s do a little history:

• In 2007, congress passes the Mortgage Forgiveness Debt Relief Act which allowed qualified private mortgage insurance to be wholly or partially deducted in accordance with IRS Publication 936 (subject to income restrictions).
• This benefit expired in 2011 thus punching the housing market in the gut for 2012.
• The American Taxpayer Relief Act of 2012 extended the Mortgage Forgiveness Debt Relief Act

Assuming you’re not as big of a geek as I am and don’t desire to read through the 154 page bill, there are a couple of important points pertaining to mortgage insurance deductibility that you’ll want to pay attention to.  They are these:

• It retroactively allows qualified private mortgage insurance to be an itemized deduction for 2012 (again, subject to some restrictions).
• It extends the qualified and itemized mortgage insurance deduction through 2013 (again, subject to some restrictions).

So, besides from the obvious, what does this mean?

1. Make sure discuss this with your CPA when filing your tax return this year (for calendar year 2012) if mortgage insurance has been a part of your life in 2012 and/or might be in 2013.
2. If you’re buying a home in 2013 using conventional financing that will be privately insured, you should strongly consider using Single Premium Financed Private Mortgage Insurance.  This deduction won’t be around forever so, aside from Single Premium Financed Private Mortgage Insurance typically making the most financial sense amongst the four types of private mortgage insurance, you might get additional bang for your buck if you’re itemizing deductions for your 2013 filing.

This is pretty much the most graceless and convoluted way the federal government could have handled this but at least they got it right in the end.  Should you want to see mortgage insurance pricing scenarios specific to your transaction, please visit our Price my PMI section on our website.