UG Insurance Brokerage Inc Blog
The down payment is unquestionably one of the most significant costs when purchasing a property.
And while you're normally required to put down 20% on a property, paying the full price isn't always attainable for many. Buyers can still acquire a property in this case, but their lender may ask them to obtain private mortgage insurance.
Because of the Consolidated Appropriations Act of 2020, the part of your monthly mortgage payment that pays Private Mortgage Insurance (PMI) or Mortgage Insurance Premiums (MIP) may become deductible.
Property purchasers with less than 20% equity pay PMI, and the monthly premium may range between $30 and $70 for every $100,000 loan. Previously, taxpayers may deduct PMI, and the Consolidated Appropriations Act extended the deduction through 2020 and 2021.
What Is Private Mortgage Insurance (PMI)?
Private mortgage insurance may protect the lender if you lose your work unexpectedly or have other problems that prevent you from making your mortgage payments.
In this case, private mortgage insurance may cover a part of the lender's loss, softening the lender's financial blow. In essence, private mortgage insurance may protect the lender rather than you.
When is PMI Deductible?
A PMI tax deduction is only available if your federal tax deductions are itemized. PMI is irrelevant to anyone receiving the regular tax deduction. The Tax Foundation estimates that around 86 percent of families will use the standard deduction.
The standard deduction for single taxpayers in 2020 was $12,400, or $24,800 for married couples filing jointly, and it is increasing to $12,550 for single filers and $25,100 for couples in 2021.
How Much Would a Taxpayer Save With the PMI Deduction?
The deduction may vary on how much you owe and your tax status, but a decent rule of thumb is that for every $100,000 of financing, you'll pay $50 in monthly premiums.
However, keep in mind that the down payment size, the kind of loan, and the lender's criteria may all alter your real cost.
For example, if a person puts 5% down on a $200,000 home, they may pay around $125 in monthly PMI charges. If you increase your down payment to 10%, you may pay less than $80 each month.
How to Know if Private Mortgage Insurance is Deductible?
To determine if your PMI is deductible, you must first complete certain fundamental conditions. The first is your annual earnings. You are not eligible for a PMI deduction if your adjusted gross income for the year is $109,000 or higher.
If each partner earns more than $54,500, married couples who file separately will likewise be unable to claim a PMI tax deduction. And if your total family annual gross income is less than $100,000, your PMI is completely tax-deductible.
Another important criterion for claiming a PMI tax deduction is itemizing your federal tax deductions. You will not be eligible if you do not itemize your tax deductions and take the basic tax deduction.
Private mortgage insurance may safeguard the lender if you unexpectedly lose your job or have other circumstances that prohibit you from paying your mortgage.
To be qualified for the PMI tax deduction, you must fulfill basic standards such as having an annual income of less than $109,000 and itemizing your federal tax deductions.
At UG Insurance Brokerage Inc, we put our clients first by offering them policies that they can afford. Having insurance is a necessity nowadays, and we're here to help you out. Learn more about our products and services by calling our agency at (718) 848-7777. You can also request a free quote by CLICKING HERE. Any coverage discussed is not guaranteed. Please contact us today to go over your policy to ensure your needs are met! We are here and happy to help.