Homeowner Tax Deductions Explained: PMI & Mortgage Interest
Owning a home comes with several potential tax advantages, but understanding which costs are deductible — and when — can make a significant difference in how much you save. One area that often causes confusion is private mortgage insurance (PMI), especially since its tax treatment has changed multiple times in recent years.
Below is a comprehensive guide explaining what PMI is, how it works, when it’s tax deductible, and a full breakdown of seven major tax deductions no homeowner should miss.
What Is Private Mortgage Insurance (PMI)?
When you get a mortgage, your lender may require you to pay private mortgage insurance (PMI). PMI does not protect you as the borrower — it protects the lender in case you default on the loan.
PMI is typically required on conventional loans when your down payment is less than 20% of the home’s purchase price.
How PMI Works
- • PMI is mandatory for most conventional loans with less than 20% down.
- • It’s added to your monthly mortgage payment.
- • Once you reach 20% equity (through loan payments or home appreciation), you can request PMI removal.
Note: Other loan types also have mortgage insurance. For example, FHA loans require mortgage insurance premiums (MIP), which generally cannot be removed unless you refinance or wait a required period.
How Much Does PMI Cost?
PMI costs depend on your loan amount, credit profile, and down payment size.
- • Typical range: 0.2% to 2% of the loan amount annually
- • According to Freddie Mac, PMI usually costs $30–$70 per month for every $100,000 borrowed, though it can be higher in some cases.
Typical Monthly PMI Costs
- $100,000 loan: $30–$70 per month
- $200,000 loan: $60–$140 per month
- $300,000 loan: $90–$210 per month
- $400,000 loan: $120–$280 per month
How Do You Pay PMI?
PMI is included in your monthly mortgage bill. If you review an itemized mortgage statement, PMI will appear as a separate line item alongside principal, interest, taxes, and insurance.
Is PMI Tax Deductible?
Past, Present, and Future PMI Tax Rules
- • 2007–2021: PMI was deductible for homeowners who itemized their taxes. More than 3 million homeowners claimed this deduction annually.
- • 2022–2025: PMI is not deductible due to changes in the tax code.
- • Starting in 2026 (filed in 2027): PMI becomes tax deductible again, and this change is now permanent.
Under the reinstated rules:
- • PMI is treated as mortgage interest
- • You must itemize deductions to claim it
- • Applies to:
- ✓ PMI on conventional loans
- ✓ MIP on FHA loans
- • Income limits apply:
- ✓ Full deduction for adjusted gross income (AGI) up to $100,000
- ✓ $50,000 for married filing separately
- • Phased out above those levels
Your lender will provide Form 1098, which includes the total mortgage insurance paid.
How Much Can the PMI Deduction Save You?
Your savings depend on:
- 1. Whether you itemize deductions
- 1. How much PMI you pay annually
- 1. Your tax bracket
Standard Deduction (2026)
- • Single filers: $16,100
- • Married filing jointly: $32,200
You’ll only benefit from itemizing if your total deductions exceed these amounts.
In 2021, the average PMI deduction was just over $2,300, with higher averages in states like California, Colorado, and Washington.
Example
If you pay $2,300 in PMI annually and are in the 22% tax bracket:
$2,300 × 0.22 = $506 in tax savings
Estimated Annual Savings by Loan Amount
| Loan Amount | PMI Paid Per Year | 12% Bracket | 22% Bracket | 24% Bracket | 32% Bracket |
|---|---|---|---|---|---|
| $100,000 | $360–$840 | $43–$101 | $79–$185 | $86–$202 | $115–$269 |
| $200,000 | $720–$1,680 | $86–$202 | $158–$370 | $173–$403 | $230–$538 |
| $300,000 | $1,080–$2,520 | $130–$302 | $238–$554 | $259–$605 | $346–$806 |
| $400,000 | $1,440–$3,360 | $173–$403 | $317–$739 | $346–$806 | $461–$1,075 |
7 Key Tax Deductions Homeowners Can’t Afford to Overlook
1. Mortgage Interest
You can deduct mortgage interest paid on:
- • Up to $750,000 of mortgage debt (single or married filing jointly)
- • $375,000 if married filing separately
Higher limits apply to mortgages taken out before Dec. 16, 2017, and there is no cap for mortgages before Oct. 13, 1987.
Your lender provides Form 1098 showing interest paid.
2. Private Mortgage Insurance (PMI)
Beginning with 2026 tax returns, PMI and FHA MIP are deductible again as part of the mortgage interest deduction, subject to income limits and itemization.
3. Discount Points
Discount points may be deductible as mortgage interest if IRS requirements are met, including:
- • Loan used to buy or build your primary residence
- • Points are customary and reasonable
- • Paid with non-borrowed funds
- • Clearly listed on the settlement statement
If not eligible for immediate deduction, points may be deducted over the life of the loan.
4. Property Taxes
You can deduct state and local property taxes up to:
- • $10,000 (single or married filing jointly)
- • $5,000 (married filing separately)
Certain local benefit taxes for streets, sidewalks, and sewer maintenance may also qualify.
5. Home Equity Loan or HELOC Interest
Interest is deductible only if the funds were used to buy, build, or improve a home.
- • Deduction limit: $750,000 (or $375,000 MFS)
- • Extended through 2028 under recent legislation
6. Home Office Expenses
If you’re self-employed:
- • Space must be used regularly and exclusively for business
- • Simplified method: $5 per square foot, up to $1,500
- • Filed using IRS Form 8829
Employees working remotely do not qualify.
7. Home Improvements
You may deduct:
- • Medical-related home modifications (subject to value adjustment)
- • 30% credit for qualified energy-efficient improvements, up to $3,200
- ✓ $1,200 for energy property costs
- ✓ $2,000 for heat pumps and biomass systems
This credit is nonrefundable and expires at the end of 2025.
Bottom Line: PMI Will Be Tax Deductible Again in 2026
PMI is often a necessary cost for buyers who can’t put 20% down, making homeownership more accessible. While PMI isn’t deductible for the 2025 tax year, it returns as a permanent deduction starting in 2026, provided you itemize and meet income requirements.
Understanding how PMI fits alongside other homeowner tax deductions can help you plan smarter — whether you’re buying your first home, refinancing, or preparing for upcoming tax years.
If you’re ready to take the next step toward homeownership, getting preapproved can help you understand what you qualify for and how these deductions may apply to you.
