You can write off mortgage insurance when you file your personal income tax, but you must follow the rules published by the Internal Revenue Service (IRS). In 2006 Congress answered a petition by the insurance companies asking for mortgage insurance premiums to be an allowable deductible on personal income tax returns. Before the enacting of the law, more borrowers paid a higher rate of interest in lieu of purchasing private mortgage insurance (PMI) because interest could be claimed as an exemption on taxes. Effective 2010, Congress has allowed the IRS to write rules to allow PMI to be claimed as a deductible item on federal tax returns.

The IRS rules state that the deduction of PMI must be for a qualified premium paid. PMI paid to private companies and the mortgage insurance paid to Federal Housing Administration (FHA), Rural Housing Service, and the funding fee charged by the Veteran’s Administration (VA) are all qualified as deductible. The Homeowners Protection Act of 1988 defines which companies are considered as private insurance carriers. You must pay for one of these type expenses so you can write off mortgage insurance.

Just like there are specific insurances that qualify for the allowable deduction, there are also requirements for the purchaser of the insurance to meet. If you are married filing jointly your adjusted gross income cannot exceed $100,000. If you are married filing separately status then you are limited to $50,000 in income. As long as your income is below these limits you can write off mortgage insurance premiums paid in the tax year for which you are filing. If you make between $100,000 and $109,000 you can write off a portion of the premium paid if your status is married filing jointly. You can write off a portion if you are married filing separately and make between $50,000 and $54,000. Neither filing status can write off any amount of the premium paid if their adjusted gross earning exceeds these figures. Also the claimant must live in the property as a primary residence and the amount must be the same as the amount the lender reports on IRS Form 1098 at the end of the tax year.

Not all premiums are paid on a monthly basis as part of the house payment. Sometimes the lender accepts pre-paid insurance. If the borrower pays this in advance then the loan term or 84 months is the limit for claiming the deductible. The deductible must be taken over the term that is shortest because it covers the entirety of the loan period. The VA notes and Rural Housing Service loans are exempt from this requirement. Also you can only deduct the amount of interest that was paid during specific months in the taxable year. If you purchased your home and pre-paid your premium in June, then you can only claim six months (assuming your first payment was made in July). To determine the amount you can deduct for each month of the taxable year use the following formula: Total amount of pre-paid premium divided by 84 months to equal the monthly amount of premium. You then multiply the number of months times the monthly premium amount to arrive at the amount of your tax year deductible.

You must keep in mind that Congress only authorized the deduction through the 2010 tax year. You will have to read the instructions that come with your IRS income tax return form to find out if the premiums are deductible past the year 2010. If there is no extension of this allowable deduction, then 2010 will be the last year you can write off mortgage insurance.

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