Let's say there is a couple who bought a house this spring. Since they only made a 10% down payment, their monthly mortgage payment includes PMI.

This PMI has become tax-deductible again starting with the 2026 tax year. It will first apply when filing taxes in the spring of next year.

The basis for this is the One Big Beautiful Bill Act signed on July 4, 2025. Section 70108 of this law allows mortgage insurance premiums to be treated as qualified residence interest.

This is not a completely new system. It was established in 2007, extended several times, and then disappeared after the 2021 tax year.

In the past, Congress had to decide each year whether to extend it. This time, it has been included as a permanent provision without an expiration date, which is different from before.

The scope of eligibility is broader than expected. It includes not only PMI for conventional loans but also FHA's MIP, VA funding fees, and USDA guarantee fees.

However, there are conditions. The loan with insurance must be used to buy, build, or significantly improve the home you live in or a designated second home.

The insurance contract must also have been issued after 2006. For those who bought homes recently, this is likely not a concern.

The first hurdle is income. If your adjusted gross income (AGI) exceeds $100,000, the deduction amount decreases by 10% for every $1,000 over that limit.

So, if your AGI exceeds $109,000, there will be no amount left to deduct. For married couples filing separately, the threshold drops to $50,000.

It's worth noting that this $100,000 threshold is the same for both singles and married couples filing jointly. This figure has remained unchanged since it was first established in 2007, making it quite tight for dual-income households.

The second hurdle is itemized deductions. Since PMI goes on Schedule A, you must choose itemized deductions instead of the standard deduction for it to make sense.

The standard deduction for 2026, as announced by the IRS, is $32,200 for married couples filing jointly and $16,100 for singles. You need to have itemized deductions that exceed these amounts to justify claiming them separately.

Returning to the initial couple, let's plug in some numbers. For the sake of convenience, let's assume a hypothetical scenario where the couple has a combined AGI of $95,000, with mortgage interest of $22,000, property taxes of $9,000, and PMI of $1,800.

If you exclude PMI, the total of interest and property taxes is $31,000. Since this is below the standard deduction of $32,200, they would have likely just taken the standard deduction in the past.

However, adding the PMI of $1,800 brings the total to $32,800. When you add Illinois state income tax and charitable contributions, itemized deductions become clearly advantageous.

The SALT deduction limit, which combines property taxes and state income taxes, has also increased under the same law. The limit for 2026 is $44,000, which is a welcome change for homeowners in areas with high property taxes.

However, this does not mean that the entire $1,800 in PMI will be refunded. The deduction only reduces taxable income, and the actual tax savings is the amount multiplied by your tax rate.

Moreover, only the portion exceeding the standard deduction provides real benefits. In the example above, compared to the scenario without PMI, the tangible effect may be smaller than expected.

Conversely, if the same couple has an AGI of $115,000, the PMI deduction would be $0. With high interest rates and rising home prices, many households may fall into this income bracket.

Checking is simple. The mortgage insurance premiums paid for the year will be listed in box 5 of Form 1098 sent by the lender early next year.

If the premium was paid upfront at closing, the treatment is different. Generally, it is deducted over the loan term or the shorter of 84 months, while VA funding fees and USDA fees can be deducted in the year they are paid.

One misconception needs to be addressed. Just because the deduction is back does not mean there is a reason to keep PMI for a long time.

For conventional loans, you can request to cancel PMI once the principal drops to 80% of the original home value. It automatically ends when it reaches 78% according to the law.

If home values have risen significantly, you can also get a new appraisal to remove it sooner. Not paying the monthly insurance premium is a much more certain way to save than relying on a deduction.

FHA loans are different. If the down payment is less than 10%, MIP will remain for the life of the loan, making this deduction relatively more significant for FHA borrowers.

In summary, those who will benefit are homeowners with incomes below $100,000 who have high interest and property taxes and choose to itemize deductions. This is a narrower range than one might think.

If I were in a position where I am paying PMI this year, I would first receive the 1098 and calculate both the standard and itemized deductions. At the same time, I would consider the timing for refinancing or reappraising to eliminate PMI.

Tax calculations can vary significantly based on income composition and deduction items. I recommend checking your situation with a tax professional or CPA.