As you prepare your income tax return, you may be wondering, "Are mortgage insurance premiums tax-deductible?" The good news is that you can deduct this expense if you own a second home that is a rental property. Special rules also apply for tenants who are stockholders in cooperative housing corporations to allow them to deduct mortgage insurance premiums.
Can I Deduct the Mortgage Payment on a Rental Property?
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According to the Internal Revenue Service (IRS), if you own a second home that you treat as a rental property, you can deduct your out-of-pocket expenses. The same rules apply to a vacation home rented out when you or your family isn't using it. Unfortunately, the mortgage payment is not tax-deductible.
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Out-of-pocket expenses on a rental property include the mortgage interest. The total amount will be tax-deductible if the rental property is occupied by a tenant year-round.
In the case of a vacation property, you would have to determine the percentage of time it was owner-occupied versus rented. The property must be rented at least 15 days out of the year for you to deduct your expenses on your income tax. Based on this figure, you would calculate the amount of the tax-deductible mortgage payment and interest.
Example of Deduction
Say that tenants occupied the property nine months of the year. The owner and their family used it during the other three months. The mortgage interest payments totaled $7,500. (For purposes of the example, we are using round figures.)
9 months rented out/12 months in the year x $7,500 = $5,625
The mortgage interest deduction for the rental property is $5,625.
Tenant-Stockholders in Cooperative Housing Corporations
Suppose you are a tenant-stockholder living in a cooperative housing corporation, special rules apply to you at tax time. This situation applies if you live in the house or apartment because you own stock in the cooperative.
Your share of the mortgage interest paid as a tenant-stockholder is tax-deductible if the following conditions apply:
- The cooperative housing corporation receives at least 80 percent of its income from its tenant-stockholders.
- At least 80 percent of the property must be for residential use.
- A minimum of 90 percent of the corporation's expenses are for management, care and maintenance of the property.
To calculate your share of the mortgage interest, multiply the total interest figure by as follows:
Number of shares you hold in the cooperative/Total number of shares of stock in the cooperative.
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Mortgage insurance premiums are tax-deductible as an expense incurred when renting out dwellings. You can deduct the entire portion of this expense if the property is occupied by tenants all year. If tenants stay for part of the year, you would have to calculate a prorated amount to reflect the time you or your family used it.
Where to Claim Mortgage Insurance Deduction
Use Schedule E (Form 1040) - Supplemental Income and Loss to claim the mortgage insurance deduction for a rental property.%2C%20Supplemental%20Income%20and%20Loss.) Enter the amount of mortgage insurance you paid during the year on Line 9 - Insurance.
If you have questions about the mortgage insurance deduction, contact an income tax professional for help.
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