If you are are purchasing a home or are a homeowner who put less than 20% down you likely have a mortgage insurance policy. Mortgage insurance is paid by you to protect your lender against default on your home mortgage. While typically purchasing mortgage insurance doesn't have much benefit for you, it is a deductible expense on your Schedule A (personal), Schedule E (rental) and in some cases your Schedule C.
Sergio recently purchased a second home for $230,000 to serve as a rental property. Since Sergio only put down $30,000 (13%) to purchase his property, his lender required him to purchase a private mortgage insurance policy, which costs $1,200 per year. When Sergio prepares his taxes he can deduct the $1,200 of mortgage insurance on line 9 of his Schedule E.
Thomas is a real estate agent who owns and manages multiple long-term rental properties. Last year Thomas put 10% down to purchase his third home, which he plans to use as a rental. Since he only put 10% down, he also purchased a mortgage insurance policy. At the end of the year Tom provided his accountant with all of the information pertaining to his rentals so his accountant could prepare his Schedule E. After reviewing Tom's documents, his accountant informed him that he could not deduct the mortgage insurance he purchased on his third home since only two personal properties can qualify for the deduction.
Tito is a freelance software developer who works from his qualifying home office, which comprises approximately 10% of his home. Last year Tito paid $1,500 for mortgage insurance. Since Tito uses the actual method to deduct his home office expenses he would be able to include $150 ($1,500 x 10%) of his mortgage insurance on his Schedule C as part of his home office deduction. If he itemizes his deductions he could include the remaining $1,350 on his Schedule A, however, if Tito takes the standard deduction he would not be able to deduct any portion of the mortgage insurance not related to his business use.
Kelly rents out the second bedroom in her home periodically on Airbnb. Last year she rented the room, which makes up 15% of her home, for 91 nights. Kelly pays $900 per year for mortgage insurance. When Kelly prepares her tax return she could deduct $34 ($900 x 15% x 91/365) of mortgage insurance on her Schedule E. The remaining balance would be deductible on her Schedule A if she itemizes her deductions.
Bob has a second personal home which he rents out on a long-term basis. Last January when he purchased his second home / rental he pre-paid $10,000 of mortgage insurance on his 15 year mortgage. Even though Bob paid $10,000 for mortgage insurance during the year, he would only be able to deduct $1,428 ($10,000 / 84 x12) of it on his Schedule E each year since the deduction must be spread out evenly over the lesser of 84 months or the mortgage term (180 months / 15 years in this example).
