8033 / What deduction is permitted for premiums paid by a taxpayer for qualified mortgage insurance?

Editor’s Note: Congress extended the favorable tax treatment for mortgage insurance, discussed below, through 2021. The 2025 OBBB restored the deduction for tax years beginning after December 31,2025.

Premiums paid by a taxpayer during the taxable year for qualified mortgage insurance in connection with acquisition indebtedness for the taxpayer’s qualified residence will be treated as interest that is qualified residence interest.¹ But the amount otherwise treated as interest must be reduced (but not below zero) by 10 percent of the amount per each $1,000 or fraction thereof ($500 for married individuals filing separate returns) that the taxpayer’s adjusted gross income exceeds $100,000 ($50,000 for married individuals filing separate returns) for the taxable year.² This favorable tax treatment does not apply to any mortgage insurance contracts issued before January 1, 2007, and does not apply to amounts paid or accrued after December 31, 2021 (or property allocable to any period after that date).³

Qualified mortgage insurance means (1) mortgage insurance provided by the Department of Veterans’ Affairs, FHA, or Rural Housing Service, and (2) private mortgage insurance (as defined by Section 2 of the Homeowners Protection Act of 1998).⁴ A special rule for prepaid qualified mortgage insurance requires that any amount prepaid by a taxpayer for qualified mortgage insurance, which is properly allocable to any mortgage the payment of which extends to periods that are after the close of the taxable year in which the amount is paid, will be treated as paid in those periods so allocated. No deduction is allowed for the unamortized balance of an account if the mortgage is satisfied before the end of its term. This does not, however, apply to amounts paid for qualified mortgage insurance provided by the Department of Veterans’ Affairs or the Rural Housing Service.⁵