Mortgage insurance plays a significant role in the home-buying process, often required for those who cannot make a large down payment. Understanding its tax implications is essential for homeowners aiming to maximize financial benefits. As we approach 2025, questions arise about whether mortgage insurance payments will remain deductible from taxable income.
With potential changes in tax laws, staying informed is critical. This article explores the nuances of mortgage insurance deductibility, offering clarity on what homeowners can expect regarding tax deductions in the near future.
PMI, MIP, and Coverage Variations
The landscape of mortgage insurance includes different types of coverage tailored to borrower needs and lender requirements. These variations influence how they are treated under U.S. tax law.
Private Mortgage Insurance
Private Mortgage Insurance (PMI) is required by lenders when borrowers make a down payment of less than 20% on conventional loans. PMI protects lenders against default. Its cost depends on factors like down payment size, loan amount, and credit score. For tax year 2025, PMI premiums are not deductible at the federal level because the mortgage insurance premium deduction does not apply to amounts paid after December 31, 2021.1Legal Information Institute. 26 U.S. Code § 163 – Interest
Mortgage Insurance Premiums
Mortgage Insurance Premiums (MIP) are tied to FHA loans insured by the Federal Housing Administration. FHA borrowers pay both upfront and annual premiums, which can be financed into the loan. As of the 2025 tax year, these premiums are not deductible for federal income tax purposes unless Congress reinstates the deduction.
Other Coverage Types
Beyond PMI and MIP, other forms of mortgage-related charges, such as VA funding fees and USDA loan guarantee fees, exist. These fees are important for securing certain loans but, like PMI and MIP, they are not deductible for federal income taxes for 2025 unless the law changes. Consulting a tax professional can help homeowners navigate these nuances.
Criteria for Deductions
Understanding the criteria for mortgage insurance deductions is key to determining eligibility. For 2025, there is no federal itemized deduction for mortgage insurance premiums, so prior income-based phaseouts don’t apply unless Congress revives the deduction in a future year.
The insurance must be tied to a primary or secondary residence to qualify if the deduction is ever reinstated. Rental or investment properties are excluded. Additionally, the premiums must be paid on a loan secured by the property, and payments must occur within the taxable year for which the deduction is claimed. Homeowners should keep detailed records in case rules change.
Reporting on Returns
Claiming mortgage insurance deductions requires accurate reporting on tax returns. For 2025, you generally won’t claim mortgage insurance premiums on Schedule A because the deduction is not in effect. Lenders report mortgage insurance in Box 5 of Form 1098 only if the mortgage insurance premium provision applies for that year; the IRS instructs filers to check whether the provision has been extended for the year being reported.2Internal Revenue Service. Instructions for Form 1098 (04/2025)
Mortgage interest is reported separately from mortgage insurance on Schedule A of Form 1040. Digital tax filing software can help import Form 1098 data, but taxpayers should verify imported information against their records for accuracy.
Income Threshold Factors
Income thresholds play a key role only if a deduction exists. Because there is no federal deduction for mortgage insurance in 2025, AGI thresholds do not affect mortgage insurance treatment this year.
Taxpayers can still consider strategies that lawfully reduce AGI for other deductions and credits, such as retirement contributions, in alignment with their broader financial goals.
When Coverage May Not Be Deductible
Not all mortgage insurance is deductible. For the 2025 tax year, federal law does not allow a deduction for PMI, FHA MIP, VA funding fees, or USDA guarantee fees. Real estate investors should also note that even if a deduction is reinstated in a future year, rental or investment properties have different rules than primary or secondary residences. Monitoring tax laws and consulting tax advisors ensures compliance and helps you respond quickly if Congress changes the rules.