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A home buyer who uses a rental property as a passive income stream can often seek out tax tips each year. One of the most common types of expenses that are tied to an investment property is private mortgage insurance or PMI. Because not all expenses can be deducted on a personal or business tax return, knowing when is PMI tax deductible can be an asset to a property owner.
What is a PMI Mortgage?
When less than 20 percent of a home purchase price is paid to a lender, PMI is often used as insurance that a home buyer will not default on underwritten loan. All private mortgage insurance is paid in m monthly installments on a loan or can be grouped into full-year payments. A rental home, standard home or vacation home could have PMI included in the loan payments.
How to Deduct PMI Premiums on Tax Returns
The IRS publication 527 explains popular deductions for rental homes as well as houses that are used for vacation properties in the U.S. This in-depth guide put out by the IRS specifies how deductions can help reduce some taxes normally payable by a property owner. Because every person will have different tax circumstances, it can be helpful to seek out the services of an accountant when determining if PMI on a certain loan type can be deducted.
There are some investment property buyers who have been successful in obtaining an FHA loan. While programs were in place a few years ago to help owners deduct PMI expenses, there have been significant changes made that now make it more difficult to remove the standard PMI taxation. Knowing the type of loan that is attached to a rental home can bring to light if mortgage insurance can help reduce tax expenses.
Getting Rid of PMI Premiums
One advantage that investment property owners can explore to build more income from a rental home is to get rid of payable PMI premiums each year. This normally is accepted by most lenders once the LTV or loan to value ratio drops below 80 percent on a mortgage. This level ensures that the lender has recouped a large portion of the investment and private insurance would no longer be needed to secure the original loan.
Investment Financing without PMI
A clear way to remove the need for mortgage insurance on an investment property is to use alternative financing. This means not going to a lender for assistance. The widespread use of IRA, 403b, Roth IRA and solo 401K accounts to own rental properties is creating any easy way to remove PMI payments. A simple retirement guide for real state investors can be explored at the top of this page.