If you’re on the hook for paying mortgage insurance premiums, good news – they are once again deductible! However, if you’re on the receiving end of such payments, you’re now liable again for reporting them and may have a corrected Form 1098 in your future.
The deduction for qualified mortgage insurance premiums that had expired as of December 31, 2017 was recently extended via an inclusion to the government spending bill passed in December. The deduction was made retroactively available for tax years 2018 and 2019 and is set to expire again after December 31, 2020. Recipients have been encouraged by the IRS to file corrected Forms 1098, reporting mortgage insurance premiums in Box 5 when appropriate, for 2018 but are not required to do so.
Background
IRC Sec. 163(h)(3)(E) allows premiums paid or accrued for qualified mortgage insurance on a qualified residence to be treated as deductible residence interest. The deduction starts to phase down once a taxpayer’s adjusted gross income for the year reaches $100,000 (or $50,000 for those married filing separate) and is fully phased out when adjusted gross income reaches $110,000, or $55,000 for those married filing separate.
Form 1098 instructions require reporting of qualified mortgage premiums paid in during the year that are $600 or greater. Qualified premiums come from mortgage insurance on a mortgage under contract issued after December 31, 2006. Reporting on Form 1098 is determined on a mortgage-by-mortgage basis, as such there is no aggregation of all mortgage insurance premiums received on all mortgages of an individual to determine if the $600 reporting threshold has been met.
Correct or Leave for 2018?
The IRS gives guidance for potential issuers stating, “You are not required to file or furnish corrected Forms 1098 for 2018 to report MIP for that year. However, we encourage you to make that information available to borrowers so that they can decide whether to amend their 2018 income tax returns to claim the additional deduction.”
Taxpayers filing amended tax returns claiming mortgage interest premiums would benefit from having a corrected Form 1098 to substantiate their deduction and avoid a matching notice from the IRS. But at the same time correcting these forms could potentially be administratively burdensome for some banks and they may opt to forgo the 2018 corrected filings.
Going Forward
The 2019 and 2020 tax years will not have optional reporting for recipients, as the retroactive extension was clear before their filing due dates. Make sure Box 5 of Form 1098 is completed as appropriate according to its instructions. If 2019 Forms 1098 were filed without mortgage insurance premiums included when required, a corrected filing is necessary!
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