Qualified Mortgage Insurance

Mortgage insurance is eligible for a tax deduction if you pay the premiums to the U.S. Department of Veterans Affairs, Federal Housing Administration, Rural Housing Administration or to private insurers. To be deductible, you must actually pay the premiums during the tax year. For example, if you receive an invoice for December but you do not pay it until January, the payment is not deductible for the year in which you received the bill.

Prepaid Premiums

If you prepay premiums for periods beyond the current tax year, you must allocate it over the term of the mortgage, or over 84 months from the time you initially obtain the insurance coverage, whichever is shorter. You can then deduct the premiums in the year in which you allocate them. This allocation rule does not apply if the insurance provider is the Veterans Affairs or Rural Housing Administration.

Acquisition Debt

For insurance premiums to be deductible, you must use the mortgage loan to buy, build or substantially improve a qualified home that serves as security for the mortgage. The total amount you can treat as home acquisition debt may not exceed total principal loan balances of $1 million on qualified homes.

Qualified Home

A qualified home includes a main home that is the principal residence of the taxpayer, plus one additional home that you use for personal purposes. A second home that you purchase for income-producing activities, such as rental income, is not a qualified home. Either home may be a house, condominium, cooperative, mobile home, house trailer, boat or similar property that has sleeping, cooking and bathroom facilities.

Deduction Limit

Every year you will receive a Form 1098 from mortgage lenders with information on the total amount of mortgage insurance premiums you pay during the tax year. However, as of 2009, this amount is not deductible if you have adjusted gross income that exceeds $109,000.

Reporting

The deduction for mortgage insurance premiums is available only to taxpayers who qualify to itemize deductions. Taxpayers can itemize if the total amount of deductions for the year exceeds the prevailing standard deduction amount for the relevant filing status. If you qualify to itemize, you must include the mortgage premium amounts on the Schedule A attachment to IRS Form 1040. If you are unable to itemize and use the standard deduction, you cannot increase the standard deduction or include the deductible amount in future tax years. Once the tax year lapses, all potential deductions for mortgage insurance premiums are lost.