Ask Your Accountant: 2006 PMI Deduction

A basic benefit of buying a house is being able to deduct the interest you pay on mortgages from your income tax.  This benefit not only applies to your primary mortgage but also to "piggy-back" loans like your home equity line of credit (HELOC) if you put less than 20% down.

In the article, How Much Should You Allocate as a Down Payment?, I also talked about another way of putting less than 20% down.  (Again, putting a larger down payment on your house decreases your risk and may lower your interest rates and fees so there is a trade-off.)


This involved taking a greater mortgage from your lender and paying for private mortgage insurance (PMI).  The big disadvantage to PMI was that you couldn't deduct it like you could mortgage or HELOC interest.

Mortgage News Daily reports that, at the behest of happy private mortgage insurance lobbyists everywhere, the exiting Congress may have fixed all that...

Be sure to ask your accountant about any impact this potential change will have on your finances.  A larger deduction could reduce the amount of tax you have to pay.

The article states as of this writing:

"The Tax Relief and Health Care Act of 2006 was, by media accounts, passed by both the House and the Senate but has not yet been signed by President Bush.

Beyond that, even The Congressional Record as of Dec. 12 could not provide definitive information as to the final form of the bill as it was passed but all indications are that the PMI amendment was included.

Basically this means that those homeowners who put down less than 20 percent of the purchase price in securing a mortgage can now deduct the cost of the private mortgage insurance (PMI) they were required to purchase to protect their mortgage lender in the event of default. This amount can now be treated as mortgage interest by itemizers when filing Schedule A of the federal tax return."