Deductible mortgage insurance premiums

[KWF]

Taxpayer has mortgage on principle residence.

T/P refinances first mortgage with a reverse mortgage.

Reverse mortgage pays off $60,000 first mortgage

As time goes by, t/p draws additional $10,000 from house equity bringing mortgage to $70,000

T/P sells house. Lender is paid the $70,000 principle amount plus $6000 interest and $4000 mortgage insurance premiums

At end of year, T/P receives 1098 showing $6000 interest and $4000 mortgage insurance premiums paid.

How much of the mortgage insurance premiums are deductible on sch A?

My assumption is that the following proration must be made between the $10,000 equity draw and the $60,000 acquisition debt:

Deductible mortgage insurance premiums = 60000/70000 x 4000 = $3429

Is this correct computation?

[Roland Slugg]

Is this correct computation?

No, I don't think it is.

The refinanced debt of $60,000 qualifies as "acquisition indebtedness" (Code §163(h)(3)(B)(i)), and the additional $10,000 is home equity debt. Thus, the full amount of mortgage insurance paid is deductible.

[taxea]

I haven't done the calculations but as an aside are you aware that the TP ceases to be responsible for mortgage interest once the principal goes down to less than 80% of the original principal? Many don't know this and keep paying mortgage interest for the full length of the mortgage. Dont know whether this one applies.