Mortgage Insurance Premium Deduction Retroactively Extended
On December 20, 2019, President Trump signed into law the Appropriations Act of 2020, which included a number of tax law changes, including retroactively extending certain tax provisions that expired after 2017 or were about to expire, a number of retirement and IRA plan modifications, and other changes that will impact a large portion of U.S. taxpayers as a whole. This article is one of a series of articles dealing with those changes and how they may affect you.
For tax years 2007 through 2017, when taxpayers itemized deductions, they could deduct the cost of premiums for mortgage insurance on a qualified personal residence as home mortgage interest.
This deduction has been retroactively extended back to 2018 and through 2020. If you paid premiums for mortgage insurance in 2018 or were amortizing prepaid mortgage insurance premiums from an earlier year’s home purchase, you may be able to amend your 2018 return for a tax refund.
To be deductible:
- The premiums must have been paid in connection with acquisition debt, which is debt incurred to purchase or substantially improve a home. (Note: acquisition debt includes refinanced acquisition debt but not equity debt.)
- The mortgage insurance contract must have been issued after Dec. 31, 2006.
- It must be for a qualified residence (taxpayer’s first and second homes).
- The premiums must have been paid or accrued after Dec. 31, 2006, and before Jan. 1, 2021.
- The cost of the insurance does not affect the $1,000,000/$750,000 (or grandfathered debt) limitation for acquisition debt.
- The deductible amount of the premiums ratably phases out by 10% for each $1,000 by which the taxpayer’s adjusted gross income (AGI) exceeds $100,000 (10% for each $500 by which a married separate taxpayer’s AGI exceeds $50,000). The deduction is totally phased out if the taxpayer’s AGI is over $109,000 ($54,500 for married filing separate).
Qualified mortgage insurance means mortgage insurance provided by the:
- Dept. of Veterans Affairs (VA),
- Federal Housing Administration (FHA), or
- Rural Housing Services (RHS) as well as
- Certain private mortgage insurance.
If you have any questions related to the mortgage insurance deduction or think you might qualify for the deduction in 2018 and would like to have an amended return prepared, please give our office a call.