Settlement check for mortgage insurance

[macdaddy100111]

Hi

This past summer I received a check for over a thousand dollars from a former mortgage lender. Apparently  over a decade ago (prior to a refi with another bank) they delayed informing customers that they no longer had to pay  PMI...there was some kind of class action thing and they sent checks to compensate former account holders for PMI they paid unneccesariily plus interest......there was no info about possible tax implications enclosed.....would this be taxable income on the Federal?

[guywong]

The refund equal to the amount of PMI that you had paid since the requirement was no longer required is not be taxable if you had never deducted it on your tax return.   Any PMI paid that you had previously deducted would be taxable. The interest portion is taxable.

[macdaddy100111]

So unfortunately the check and it’s accompanying documentation did not break down specifically how much was interest ….. my previous tax returns which attempted to deduct the PMI was paying at the time did  not exceed the standard deduction so did not help at the time …. Should they be sending me some kind of 1099 statement on this? 

Thanks for responding 

[guywong]

Hopefully, you will get a 1099-INT in January.  You may want to contact the sender of the check to confirm that a 1099-INT is forthcoming.  If the PMI paid was on your principal residence and you didn't itemize your deductions on Schedule A, then the refunded PMI is not taxable.

[macdaddy100111]

We tried to itemize when we were still paying PMI  but it did not exceed standard deduction …. Are those payments deductible or not. Also we don’t have exact records from that far back more than 10 years 

[rjs]

@macdaddy100111 

If your itemized deductions did not exceed your standard deduction, then you did not itemize. Wanting to itemize or trying unsuccessfully to itemize doesn't count. Since you did not itemize, you did not deduct the PMI payments, so the refund of those payments is not taxable. You don't even enter it anywhere in your tax return. It doesn't matter whether PMI was or was not actually deductible in the years in question, because you didn't deduct it anyway.

You may not get a 1099-INT. They are only required to send you a 1099-INT if they paid you interest of $600 or more. If the total payment was a little over $1,000 it's very unlikely that $600 of it was interest. (A bank has to send a 1099-INT if they paid interest of $10 or more on money in a bank account. But this is not interest on a bank account or an investment. For interest on refunded insurance premiums a 1099-INT is only required if the interest is $600 or more.)

They have until January 31 to send you the 1099-INT if it's required. If you don't get a 1099-INT or some sort of statement of how much the interest was, you should make a reasonable effort to find out from the insurance company, or more likely from the law firm that filed the class action. But don't make yourself crazy about it. If you can't easily find out, just forget about it.