A good selling point this year and in the years that follow is that the cost of private mortgage insurance (PMI) is once again deductible on home buyer’s federal tax returns.
For the first-time since the 2021 tax year, qualifying homeowners can write off the premiums paid, not just to private mortgage insurance companies, but also to government agencies. The deduction was reinstated as part of the “One Big Beautiful Bill” Act passed last year.
Buyers who do not put 20% down are required by lenders to pay for insurance that protects lenders against default. Those who use Federal Housing Administration (FHA)-insured financing must also pay for insurance.
The deduction “will make homeownership more affordable,” says U.S. Mortgage Insurers (USMI), the trade group for private firms. The last year the write-off was available, the average deduction amount was $2,346.
The last time the deduction was available – from 2007 to 2021 – it was claimed 44.5 million times for or an average of 3.6 million times a year.
According to USMI, mortgage insurance is one of the few home buying and ownership costs that has decreased in recent years. Since 2017, the group says homeowners casualty insurance has gone up 26% and property taxes have increased by 27%. But the cost of private mortgage insurance as measured by publicly reported data on in-force premium yields has fallen by 25%.
Private insurance protects more than $1.4 trillion worth of mortgages purchased and securitized by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, serving as the first layer of private capital protecting the housing system and taxpayers from risk. Since the GSEs went into conservatorship in 2008, private insurers have covered almost $60 billion in claims.
