Deductibility of PMI

• PMI can be deducted from your income taxes as an itemized deduction. When you claim the deduction, you cannot claim the standard deduction, so for some taxpayers who would not otherwise itemize, it may not make financial sense to claim the deduction. Only PMI charged on mortgages taken out after 2006 can be deducted from your federal income tax. PMI charged on mortgages taken out in 2006 or earlier cannot be deducted.
  
  

When to Deduct Up-Front PMI

• If you pay an upfront PMI fee, such as a funding fee for a Veterans Administration mortgage, you can deduct that amount in the year that you pay it. FHA mortgages and mortgages backed by the Rural Housing Service have similar fees that also can be deducted in the year you pay them. For example, if you pay a funding fee of $2,000 on your VA mortgage, you can deduct that amount that year.
  
  

When to Deduct Prepaid PMI

• If you prepay PMI, the IRS does not allow you to deduct it all immediately. Instead, you have to deduct it over the shorter of the time for which it is allotted, or seven years. For example, if you prepay 10 years of PMI, you would have to deduct one-seventh of that payment in each of the next seven years. For example, if you prepay $3,500 of PMI that would be allocated to the next 10 years, you would only be able to deduct $500 each year.
  
  

PMI Deduction Qualifications

• You cannot claim any deduction for PMI paid if your adjusted gross income exceeds the annual limit. For 2010 tax returns, your adjusted gross income cannot exceed $109,000 if you file a joint return or $54,500 if you are single. If your adjusted gross income falls between $100,000 and $109,000 for joint filers, or $50,000 and $54,500 for single filers, the deduction amount will be decreased. When you file your income taxes, you can find the amount of PMI paid on your Form 1098, which your lender will send you.