, Answering FAQ'sTurboTax Employee
Congress created a tax deduction for private mortgage insurance starting in 2007 To help boost the distressed housing market. The tax break has since been extended through 2013 for mortgages taken out or refinanced after January 1, 2007.
What is mortgage insurance? It's insurance that some lenders require home buyers to buy (pay) if they put little or no money down. The insurance is designed to protect the lender against default by the borrower, and is often known as private mortgage insurance, or PMI.
IMPORTANT: Don't confuse this with homeowner's hazard insurance, which most lenders require borrowers to have in case of damage or fire to the property.
Your qualified mortgage insurance is usually reported in box 4 of Form 1098, Mortgage Interest Statement, or on a year-end statement from your mortgage lender. If you're not sure what you paid for mortgage insurance, check with your lender or the mortgage insurer.
How does the deduction work?
It allows qualified homeowners to take a tax deduction on the insurance premiums they pay in addition to other deductions related to owning a home, such as mortgage interest and property taxes. An insurance industry trade group estimates the deduction saves a typical homeowner about $350 in taxes.
The deduction covers mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, the Rural Housing Administration as well as private mortgage insurers.
Note: The IRS says that mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. If provided by the Rural Housing Service, it is commonly known as a guarantee fee. The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing.
For more information, including special rules and restrictions, see IRS Publication 936 Home Mortgage Interest Deduction.