This article is provided for educational and informational purposes only. It does not constitute legal, financial, or tax advice, and no attorney-client relationship is formed by reading it. Laws, regulations, official guidance, and related information vary by jurisdiction, change frequently, and may have changed or become outdated since the publication date. Always verify current information with authoritative sources and consult a qualified professional about your specific circumstances. The author and publisher assume no liability for actions taken based on this information.
Key Facts
- Federal level: Congress retroactively restored the mortgage insurance premiums deduction for tax year 2018 in December 2019.
- Federal level: The 2018 deduction was an itemized deduction for qualifying premiums connected to home acquisition debt secured by a first or second home.
- Federal level: For 2018, the deduction began phasing out above adjusted gross income of $100,000, or $50,000 for married taxpayers filing separately.
- Federal level: No 2018 deduction remained when adjusted gross income exceeded $109,000, or $54,500 for married taxpayers filing separately.
- Current federal context: The deduction later expired for premiums paid or allocable after December 31, 2021, so the 2018 rule is historical rather than a current-year deduction.
The mortgage insurance premiums deduction for 2018 has an unusual history. Early IRS materials said it had expired at the end of 2017. Congress then passed a law in December 2019 that reached back and restored the deduction for amounts paid or incurred after December 31, 2017.
That timing explains why two official documents about the same tax year can appear inconsistent. The original 2018 edition of IRS Publication 936 reflected the law before the extension, while the February 2020 revision of the 2018 Schedule A instructions reflected the law after the extension.
What counted as qualified mortgage insurance in 2018
The federal rule treated certain mortgage insurance premiums as qualified residence interest. For the 2018 deduction, the insurance contract had to be issued after December 31, 2006, and the premiums had to relate to home acquisition debt secured by a qualified first or second home.
Qualifying coverage included private mortgage insurance and mortgage insurance provided by the Federal Housing Administration, Department of Veterans Affairs, or Rural Housing Service. The VA funding fee and Rural Housing Service guarantee fee fell within this definition.
This deduction concerned mortgage insurance, not the ordinary interest charged on the home loan. The related article on the broader mortgage interest deduction explains that separate category.
The deduction required itemizing
Qualified 2018 premiums were reported on Schedule A, line 8d. Because Schedule A is used for itemized deductions, the premium deduction did not produce a separate benefit on a return that used the standard deduction.
The Tax Cuts and Jobs Act nearly doubled the standard deduction for 2018. That change did not repeal the restored premium deduction, but it made the comparison between itemizing and using the standard deduction more important when describing the deduction’s practical value. A general overview of itemized and other tax deductions provides broader context.
How the 2018 income phaseout worked
The 2018 deduction was income-limited. It began to phase out when adjusted gross income exceeded $100,000, or $50,000 for a married taxpayer filing separately.
The reduction equaled 10 percent of the otherwise qualifying premiums for each $1,000 of excess income, or each $500 for married filing separately, including a fraction of those amounts. As a result, the deduction reached zero above $109,000 of adjusted gross income, or above $54,500 for married filing separately.
A simplified example shows the mechanics. If an unmarried filer had $102,500 of adjusted gross income, the worksheet rounded the $2,500 excess up to the next $1,000 increment, producing three increments and a 30 percent reduction in otherwise qualifying premiums.
Prepaid premiums could extend beyond one tax year
Some mortgage insurance is paid in advance. For 2018, premiums allocable to later periods generally had to be spread over the shorter of 84 months or the stated mortgage term, beginning with the month the insurance was obtained.
If the mortgage ended early, the remaining unallocated balance generally was not deductible. The 84-month allocation rule did not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or Rural Housing Service.
Why the 2018 rules appeared after many returns were filed
Public Law 116-94 became law on December 20, 2019. Its retroactive effective-date language restored the premium treatment for amounts paid or incurred after December 31, 2017, which included tax year 2018.
The revised 2018 Schedule A instructions therefore provide a better record of the final 2018 filing rule than the earlier version of Publication 936. The difference is chronological, not a conflict between two rules that applied at the same time.
The 2018 deduction is not the current rule
Congress later extended the provision again, but the Internal Revenue Code now ends it for amounts paid, accrued, or properly allocable after December 31, 2021. Current IRS Publication 936 accordingly states that the itemized deduction for mortgage insurance premiums has expired.
The historical 2018 rule remains relevant when interpreting a 2018 return or records from that year. It does not establish that mortgage insurance premiums are deductible on a current federal income tax return.
