mortgage insurance premium on refinance deductible?

[nwtaxlady]

Taxpayer purchased personal residence back in 2005. Now in 2009 they Refinance the house and now pay mortgage insurance premiums. Is it deductible since the house was not purchased after December 31, 2006? It was just a refinance.

[taxea]

mortgage insurance premium on refinance deductible?

Check Pub 17

[nwtaxlady]

MIP on refi?

I DID check pub 17, quickfinder and TTB! It is not stated clearly to me!

[Jesse]

I agree w/ you nwtaxlady, it's not exactly clear

Pub 17:
The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006.

Pub 936:
Refinanced home acquisition debt. Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later).

I found this on a realtor site:

PMI refinancing rules
PMI on loans refinanced might be deductible, but only up to the property's acquisition loan amount.
For example, you bought a house five years ago for $150,000 using an 80-20 piggyback loan arrangement of $120,000 and $15,000. Your home acquisition amount is $135,000.
You refinanced the property, taking out a $140,000 loan that included a PMI policy. You can only deduct the PMI premiums for the loan amount up to $135,000, the amount of the mortgage when you acquired the home, not on the full new loan of $140,000.

[nwtaxlady]

MIP on refi & no cash pd (MIP wrapped into loan)??

On another note. If the taxpayer did not bring cash into the loan and has the prepaid MIP wrapped into the loan then if they qualify otherwise say MIP provided by Veterans Affairs, then is the prepaid MIP amortized? Over the life of the loan or the 84 months? Or taken fully? I was just wondering if it mattered if they bring cash into the refinance or if they wrap it into the loan?

Any input would be appreciated.

[FEDUKE404]

Well, that was helpful!!

Check Pub 17

We all are here to expand our knowledge of taxes.

Granted, some folks' "difficult" questions may seem "simple" or even "bothersome" to the grander pooh-bahs of the tax universe, but most of us along the way needed (and continue to need) the advice of others.

I never mind helping others as many others have previously taken the time to help me.....

FE

[BHoffman]

You can tell when tax season has begun in earnest by the cheerful twittering of the elusive TAXtwEArp. Read Pub 17...chirp, chirp...See irs.gov...chirp, chirp...

http://www.youtube.com/watch?v=QI4wjTMSizo

[BP.]

You can tell when tax season has begun in earnest by the cheerful twittering of the elusive TAXtwEArp. Read Pub 17...chirp, chirp...See irs.gov...chirp, chirp...

http://www.youtube.com/watch?v=QI4wjTMSizo

Shout out to you, BH. That video brought a !

[Jesse]

On another note. If the taxpayer did not bring cash into the loan and has the prepaid MIP wrapped into the loan then if they qualify otherwise say MIP provided by Veterans Affairs, then is the prepaid MIP amortized? Over the life of the loan or the 84 months? Or taken fully? I was just wondering if it mattered if they bring cash into the refinance or if they wrap it into the loan?

Any input would be appreciated.

http://www.irs.gov/publications/p936/ar02.html#en_US_publink1000229966

Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. If provided by the Rural Housing Service, it is commonly known as a guarantee fee. The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. These fees can be deducted fully in 2009 if the mortgage insurance contract was issued in 2009. Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098.

[FEDUKE404]

Refi ?

http://www.irs.gov/publications/p936...link1000229966

Mortgage insurance provided by the Department of Veterans Affairs is commonly known as a funding fee. If provided by the Rural Housing Service, it is commonly known as a guarantee fee. The funding fee and guarantee fee can either be included in the amount of the loan or paid in full at the time of closing. These fees can be deducted fully in 2009 if the mortgage insurance contract was issued in 2009. Contact the mortgage insurance issuer to determine the deductible amount if it is not reported in box 4 of Form 1098.

But back to the original question: Does your cut/paste apply to refinancing??

FE

[Jesse]

Maybe?

But back to the original question: Does your cut/paste apply to refinancing??

FE

I'll cut and paste my original answer......

Pub 17:
The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006.

Pub 936:
Refinanced home acquisition debt. Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. Any additional debt not used to buy, build, or substantially improve a qualified home is not home acquisition debt, but may qualify as home equity debt (discussed later).

I found this on a realtor site:

PMI refinancing rules
PMI on loans refinanced might be deductible, but only up to the property's acquisition loan amount.
For example, you bought a house five years ago for $150,000 using an 80-20 piggyback loan arrangement of $120,000 and $15,000. Your home acquisition amount is $135,000.
You refinanced the property, taking out a $140,000 loan that included a PMI policy. You can only deduct the PMI premiums for the loan amount up to $135,000, the amount of the mortgage when you acquired the home, not on the full new loan of $140,000.

[nwtaxlady]

original question...

so if taxpayer refinances the house and lets use your example here Jesse:
And assume that it is provided by Veteran's Affairs.

PMI refinancing rules
PMI on loans refinanced might be deductible, but only up to the property's acquisition loan amount.
For example, you bought a house five years ago for $150,000 using an 80-20 piggyback loan arrangement of $120,000 and $15,000. Your home acquisition amount is $135,000.
You refinanced the property, taking out a $140,000 loan that included a PMI policy. You can only deduct the PMI premiums for the loan amount up to $135,000, the amount of the mortgage when you acquired the home, not on the full new loan of $140,000.

Then in this example would you just take a percentage of the MIP? Here the acquisition debt is $135,000. Then take only 96% of the MIP paid? From here on out and then if they happen to refi again then recalculate the percentage again?

[Jesse]

so if taxpayer refinances the house and lets use your example here Jesse:
And assume that it is provided by Veteran's Affairs.

PMI refinancing rules
PMI on loans refinanced might be deductible, but only up to the property's acquisition loan amount.
For example, you bought a house five years ago for $150,000 using an 80-20 piggyback loan arrangement of $120,000 and $15,000. Your home acquisition amount is $135,000.
You refinanced the property, taking out a $140,000 loan that included a PMI policy. You can only deduct the PMI premiums for the loan amount up to $135,000, the amount of the mortgage when you acquired the home, not on the full new loan of $140,000.

Then in this example would you just take a percentage of the MIP? Here the acquisition debt is $135,000. Then take only 96% of the MIP paid? From here on out and then if they happen to refi again then recalculate the percentage again?

First of all, I've never had this situation, but did very slight research as it's nice to have a little insight in case the situation would arise.

I would agree the $135,000 is acquisition debt by definition and therefore the PMI for the amount up to $135,000 would be deductible. I would try to find out how the PMI is charged, is it per $1,000, per $5,000, per $25,000, etc...to see what the cost would be for the $135,000. If this is not possible it seems the 96% would be reasonable.

If I'm totally off base, maybe someone else will help out?

If it were my client and the uncertainty of the deduction I would probably ask the NATP research department just to put my mind at ease as I am a member and I think the charge is still $25. Do you belong to any organizations that might offer such services?

[Davc]

For example, you bought a house five years ago for $150,000 using an 80-20 piggyback loan arrangement of $120,000 and $15,000. Your home acquisition amount is $135,000.
You refinanced the property, taking out a $140,000 loan that included a PMI policy. You can only deduct the PMI premiums for the loan amount up to $135,000, the amount of the mortgage when you acquired the home, not on the full new loan of $140,000.

Then in this example would you just take a percentage of the MIP? Here the acquisition debt is $135,000. Then take only 96% of the MIP paid? From here on out and then if they happen to refi again then recalculate the percentage again?

Home acquisition debt would be the remaining balance of the original loan at the time of the refi, not the original balance.

[nwtaxlady]

yes, you are right. The original acquisition debt would be the remaining balance of the loan at the time of refinance.