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Mortgage Insurance Premiums

Note: The provision allowing a deduction for mortgage insurance premiums expired for tax years after 2016.

This has been extended for the tax year 2017.

Premiums paid for acquisition indebtedness for insurance contracts issued after December 31, 2006 on a first or second home are treated as deductible mortgage interest, subject to phaseout rules.

  • Decrease of 10% for each $1,000 (or portion thereof) by which the taxpayer’s AGI exceeds $100,000 ($500 and $50,000 for MFS).
  • No deduction when AGI exceeds $109,000 ($54,500 for MFS). Qualified mortgage insurance providers include the Veterans Administration, the Federal Housing Administration, or the Rural Housing Administration, and private mortgage insurance.

Allocating prepaid mortgage insurance premiums.

If a taxpayer prepays a portion or all of the mortgage insurance premiums, the prepaid amount must be amortized over the shorter of:

  • The stated term of the mortgage, or
  • 84 months (7 years) beginning with the month in which the mortgage insurance was obtained. (Notice 2008-15)

These allocation rules do not apply to mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Authority

Qualified Principal Residence Debt

2017 changed to 2018

Taxpayers may exclude income from cancellation of qualified principal residence indebtedness for discharges of

debt occurring after 2006 and before 2018. A taxpayer may be able to exclude income from cancellation of qualified principal residence indebtedness for discharge of debt occurring on or after January 1, 2018, if the discharge was pursuant to a binding written agreement entered into prior to January 1, 2018.

  • The exclusion is limited to $2 million ($1 million MFS) of acquisition debt.
  • Acquisition debt has the same meaning as acquisition debt for purposes of the mortgage interest deduction rules except that the $1 million debt limit is increased to $2 million ($1 million MFS) for purposes of the exclusion rule. See Acquisition Debt.
  • Any amount excluded reduces the taxpayer’s basis in the residence.
  • The exclusion does not apply to debt discharged on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or the financial condition of the taxpayer.
  • The exclusion for discharge of debt on a qualified principal residence is used before the insolvency exclusion, unless the taxpayer elects to apply the insolvency exclusion instead.
  • If a portion of a loan that is discharged is not qualified principal residence indebtedness, the exclusion is limited to the amount discharged that exceeds the amount of the loan that is not qualified principal residence indebtedness.

Qualified principal residence.

For purposes of exclusion from income of qualified principal residence indebtedness, a qualified principal residence has the same definition as is used for the exclusion of gain on the sale of a principal residence.