YOU ASK:

Are the up-front mortgage insurance premiums on FHA loans tax deductible?

WE ANSWER:

Yes, premiums on mortgage insurance, whether they be paid up-front or on a monthly basis, are tax deductible, particularly if they are mortgage insurance premiums on Federal Housing Authority (FHA) loans.

The government has passed this law to make it more attractive for homeowners to purchase mortgage insurance instead of obtaining piggyback loans. Based on this new rule, you can have a lot of tax savings when you take out a mortgage insurance policy.

You should also take note that there are some restrictions or requirement on availing of the tax savings.

  • You should have a good credit standing and belong to the lower tax brackets.
  • Your adjusted gross income should be no more than $100,000 ($50,000 if you are married but filing your tax returns separately). If your adjusted gross income is more than $109,000 (or $54,500 if married and filing separately), no tax deductions would be allowed.

To determine how much of the premiums are allowed to be deducted, you should consult with your accountant or look at the table of allowable tax deductions. What you can do is to know the portion of the premiums you paid applied to the period by which you are filing your tax return.

If you are paying an upfront premium, divide the premium paid by the total number of months stated in your mortgage. Then, apply the number of months that are covered and this will be your basis in computing for your tax deductions.

Aside from mortgage insurance provided by the FHA, you can also have your mortgage insurance premiums tax deductible when you buy the insurance from the Department of Veterans Affairs (VA), the Rural Housing Service or from private mortgage insurers.

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