PMI Deduction

[artbuc]

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

In 2010, my nephew paid FHA Private Mortgage Insurance in a lump sum at settlement (around 2% of the loan amount). He also pays a fixed amount every month.

Is the lump sum amount fully deductible for 2010 or does he have to amortize it over the expected life of the loan? Thanks.

 

[FlyingRon]

My guess is the "lump sum" is just the first years premium, then they escrow the money towards the next years.

Yes he can deduct it immediately, if he otherwise qualifies (and itemizes).

 

[tranquility]

See:

Publication 936 (2010), Home Mortgage Interest Deduction

for some of the limitations.

 

[artbuc]

My guess is the "lump sum" is just the first years premium, then they escrow the money towards the next years.

Yes he can deduct it immediately, if he otherwise qualifies (and itemizes).

The monthly amount is part of his escrow but the mortgage company pays the PMI every month with collection starting immediately after settlement. I'm guessing the initial payment at settlement is prepaid PMI and therefore must be amortized according to the link provided by tranquility. I'll call FHA to confirm. Thanks for your help.

 

[artbuc]

I've done some more research and discovered this question has been asked many times and there doesn't seem to be a clear answer. The FHA Upfront Mortgage Insurance (UPMIP) is not prepaid insurance premiums so I don't think it should be amortized over the shorter of 84 months or the life of the loan as described in the IRS link provided in an earlier post. OTOH, there is a UPMIP refunding table which goes beyond the year in which the UPMIP is paid so perhaps you would amortize it based on the refunding table. However, it you finance the UFMIP (roll it into your loan), it seems like you should amortize it over the life of the loan. I guess only the IRS knows for sure.