Mortgage Insurance Premiums as Interest  
By Mariann Krieger
Community Bank Advisor, 2008 Winter

The MRA also extends the rules for treating qualified mortgage insurance premiums as deductible qualified residence interest for three years. This extension applies to amounts that: (1) are paid or accrued before January 1, 2011; (2) are not properly allocable to any period after December 31, 2010; and (3) are paid or accrued with respect to a mortgage insurance contract issued after December 31, 2006.

These rules relate to premiums paid or accrued by a taxpayer during the tax year for qualified mortgage insurance, in connection with acquisition indebtedness, with respect to a qualified residence of the taxpayer. Such premiums may be treated as qualified residence interest, subject to a phase-out based on the taxpayer’s adjusted gross income (AGI) as discussed below.

Qualified mortgage insurance means mortgage insurance provided by the Veterans Administration (VA), the Federal Housing Administration (FHA), or the Rural Housing Administration (RHA), and private mortgage insurance, as defined by Sec. 2 of the Homeowners Protection Act of ‘98 as in effect on December 20, 2006.

The amount of mortgage insurance premiums treated as qualified residence interest must be reduced (but not below zero) by: (a) for taxpayers other than married persons filing separately, ten percent of the amount of qualified mortgage insurance premiums for each $1,000 (or fraction thereof) that the taxpayer’s AGI for the tax year exceeds $100,000. And (b), for married persons filing separately, ten percent of the amount of qualified mortgage insurance premiums for each $500 (or fraction thereof) that the taxpayer’s AGI for the tax year exceeds $50,000.

For 2007 tax information reporting purposes, Form 1098 – Mortgage Interest Statement – now includes a new box, number “4”, entitled “Mortgage Insurance Premiums.” This box should be utilized to report qualifying mortgage insurance premiums. Only amounts of $600 or more need to be reported.