The Federal Housing Authority (FHA) loans require mortgage insurance premiums to qualify for the note. The insurance is purchased by the buyer and the premiums are added to the cost of the mortgage. The mortgage insurance is a benefit to the lender for the risk taken with a borrower who does not meet minimum requirements for a loan. The FHA loan is backed by the government and the borrower is not required to make as much in a down payment as is the case with conventional loans. If you default, the government guarantees the lender payment on the note. You must determine when you originated your mortgage and how much income you made in the year that you want to claim the deduction for this insurance payment on your federal income tax return.
You cannot claim the deduction on your federal income tax return if you do not itemize deductions on Schedule A of your return. If you do use Schedule A, keep in mind that you must file Form 1040. You will not be able to take the deduction if you use the short form for filing. Before you even consider going to the trouble of filling out Schedule A, check the amount of your standard deduction.
If your itemized deductions are less than your standard deduction you will not be able to claim the deductible. If you have more deductions than the standard deduction, then go to line 13 on Schedule A and fill in the amount of your mortgage insurance premium. You can also fill in the mortgage interest deduction and the property taxes paid in the tax year. All these plus any other deductibles you claim will reduce your taxable income and reduce your tax liability.
Before you take the deduction you must make sure that you are eligible. First, you must have taken out your loan after 2006. Next, you must meet the income restrictions for your filing status. For the tax year 2010, you can take the deductible if you make less than $100,000 for any of the filing status except if you are married and filing separately.
If you are in this status you must have less than $50,000 income. If you and your spouse file separately, you cannot have a combined total income greater than $100,000. If your income combined falls between $100,000 and $109,000 then you can claim a reduced deductible amount.
The lender will send you the information for income tax deductibles on IRS Form 1098. You can deduct the amount of premiums that you paid in the tax year for which you are filing. If you and your spouse file separately, you must use the Qualified Mortgage Insurance Premiums Deduction Worksheet in the Schedule A instructions to determine the amount of your reduced deductible.
If you have an FHA mortgage then you need to make sure that you have the correct amount that you are reporting for deductible credit on your tax return forms. FHA charges an upfront mortgage insurance premium and annual premiums on both. The upfront premium is paid when you take out the loan and you would claim the deductible for that tax year.
The annual premiums are deductible for only the year in which they are paid. If your escrow is paying the premium for the year in advance, you cannot take the deduction until you are in the tax year for which they are paid. For example: You pay the insurance premium for the 2012 premium in 2011. You cannot claim the deductible for that payment until the 2012 tax year, the year in which the insurance premium is due and payable.