What Is a Mortgage Insurance Premium Deduction?
There are some mortgage lenders that place the condition of purchasing mortgage insurance with the home loan as well. In such cases you can be eligible for a mortgage insurance premium deduction from your income tax claim. The IRS states that these payments qualify as a deductible however people belonging to the higher income tax bracket are ineligible.
Importance of Mortgage Insurance Premium Deduction
Mortgage lenders consider borrowers a high risk when they are unable to pay a large percentage as the down payment for a home. This is why they require a mortgage insurance policy to protect themselves from defaulters. It is mandatory for those homeowners who take out mortgages that are 80 percent of the house price or more. This policy covers the lender in case the borrower stops making the monthly payments. Once enough of the mortgage is paid off that the mortgage value drops below 80 percent, the insurance cover is no longer required.
How to Treat a Mortgage Insurance Premium Deduction
The mortgage insurance is included in the costs of getting a mortgage so it is included in the mortgage interest by the IRS which can be deducted from the income tax. The qualified mortgage insurance premium deductions are implemented on mortgages taken out after 2006. They can be deducted keeping certain limitations in mind.
Types of Mortgage Insurance Premium Deduction
To qualify for the deduction the mortgage insurance should be bought through the Federal Housing Administration, the Rural Housing Service, the Department of Veterans Affairs or any private mortgage insurance provider that meets the 1998 Homeowners Protection Act requirements. The private mortgage insurance providers are approved by the lender and usually the lender makes the arrangements for the policy and the homeowner just has to pay.
Verification for Mortgage Insurance Premium Deduction
The lenders are required to send an IRS copy of the completed Form 1908 i.e. the Mortgage Interest Statement. This form contains detail of all the home-related payments made over the entire year including mortgage interest payments and insurance premiums. The total amount paid for the mortgage insurance premium is specified in Box 4 on the form.
Point to Remember
Those who have a gross adjusted income greater than $100,000 will not receive much benefit from the mortgage insurance premium deduction because the deduction is reduced by 10 percent for every $1,000 in income above $100,000.
