Up-front PMI?

[jr2475]

What is the name of your state (only U.S. law)? California


Not sure this is the right forum for this question, but I have conflicting information regarding the claiming of the up-front PMI paid at closing when you purchase a home. I have been told that on a new purchase you can claim 100% of the up-front PMI, but can only claim the prepaid MI if it was allocated to the year you are filing taxes for.

I also understand that on a re-finance you have to amortize over the life of the loan or 84 months (which ever is shorter) but not for a new loan. I have also been told that regardless of it being a new loan or a re-fi the same rule applies in regards to the amortization. Which scenario is correct?

Any help would be great.

 

[tranquility]

The rules are new and complex and I'm not going to write a book, but if the pre-paid PMI is not to the Veteran's Administration or (another governmental organization I can't now recall), you cannot deduct pre-paid PMI except for in the year in which it applies. (Right now from 2007 to 2010.) You won't get the benefit of a deduction if the loan is closed before the prepaid amount is used up or a deduction for any amount "paid" for periods beyond 2010--unless the law changes again. In other words, the cost paid for 2007 is deductible in 2007 and the amount for 2008 is deductible in 2008 and so on.

Info edit:
For the specific instance which was asked, Notice 2008-15 provides transitional relief for 2007 to treat certain amounts of prepaid mortgage insurance as deductible qualified residence interest. Under this guidance, in the case of an individual who, in 2007, obtained a mortgage qualifying as acquisition indebtedness on a residence and, in connection with that mortgage, paid a qualified mortgage insurance premium for private mortgage insurance or mortgage insurance provided by the Federal Housing Administration issued in 2007 but extending beyond 2007, the taxpayer may allocate the prepaid premium ratably over the shorter of the stated term of the mortgage or 84 months (beginning with the month in which the insurance was obtained), to determine the amount treated as deductible qualified residence interest for 2007.

 

[jr2475]

Thank you for the help. The PMI is FHA. Also, I understand how the prepaid works, what I don't quite understand is the up-front 1.5% PMI fee you pay at closing in addition to the 3mo. up from PMI.

 

[tranquility]

New law, no regs, little guidance. "Fees" tend to not be deductible. Read the notice referenced to see if the answer is in there.

 

[jr2475]

Thanks again Tranquility, I read everything I could find on the IRS website, and if I am understanding it correctly the entire 1.5% up-front PMI should be deductible, but not the 3mo pre-pay as my purchase closed on 12/24/08. That is why I was slightly confused as some other posts stated that the PMI had to be amortized for the life of the loan or 84 month, which ever is shorter. The only reference I found in the IRS documentation regarding amortization pointed to a re-fi not a new loan. I'm still waiting to hear back from my lender as to if they will provide me with a 1098 or not. From my initial communication with them it sounds like they will not send one, which doesn't sound correct to me.

Anyhow, maybe I am just making too much of it as it seems to only make a $128 difference itemizing vs using the standard deduction. I'm not sure that small of an amount is worth the hassle of trying to figure it out. If i use the standard deduction then find later that I would have been able to itemize, I can always file an amended return if it seems worth it.