Mortgage insurance has long been viewed as dead money.
You pay it, it doesn’t build equity, and for years the default advice has been simple:

“Refinance as soon as you can to get rid of it.”

That advice is about to become incomplete.

A Familiar Tax Deduction Is Coming Back

Under the One Big Beautiful Bill Act (OBBBA), the mortgage insurance premium deduction is being reinstated beginning with tax year 2026. This allows eligible homeowners to treat Private Mortgage Insurance (PMI) and FHA Mortgage Insurance Premiums (MIP) as deductible mortgage interest.

This deduction will apply to 2026 tax returns filed in 2027.
Importantly, this is not a brand-new concept. The mortgage insurance deduction originally applied from 2007 through 2021, then expired. It was unavailable for tax years 2022 through 2025 and is now returning starting in 2026.

For homeowners currently debating whether to refinance solely to eliminate mortgage insurance, this reinstatement changes the decision framework.

A Critical Reframe: You May Not Need to Refinance Just to Eliminate MIP

Many FHA borrowers feel trapped by mortgage insurance, assuming the only solution is refinancing—sometimes at a higher interest rate or with significant closing costs.

While FHA mortgage insurance rules themselves haven’t changed, the after-tax cost may be very different going forward.

If part of your mortgage insurance becomes deductible, the urgency to refinance drops—especially when:

• Your current interest rate is already competitive
• Closing costs would be substantial
• A refinance would extend your break-even timeline

Refinancing is no longer automatic. It becomes strategic.

PMI vs FHA MIP (Quick Clarification)

For clarity:

• Conventional loans typically carry Private Mortgage Insurance (PMI)
• FHA loans use Mortgage Insurance Premiums (MIP)

Both PMI and FHA MIP are included in the reinstated deduction, subject to IRS rules.

Income Rules: This Is Based on AGI (or MAGI), Not Gross Income

Eligibility for the mortgage insurance deduction is tied to Adjusted Gross Income (AGI)—sometimes referred to as Modified Adjusted Gross Income (MAGI) for IRS purposes.

This is not based on gross receipts, revenue, or business cash flow.

Here’s the simplified framework:

• Full deduction if AGI is $100,000 or less for single filers
• The deduction phases out by 10% for every $1,000 over $100,000
• It is fully eliminated around $110,000 AGI for single filers
• Married filing separately uses lower thresholds

That’s why this message resonates so clearly:

AGI under $100K = full PMI/MIP tax deduction

Simple. Accurate. Shareable.

A Practical Example

Assume a single homeowner with:

• $95,000 AGI
• FHA mortgage insurance of $200 per month
• $2,400 per year in MIP

If they itemize deductions, that $2,400 may reduce taxable income, potentially saving several hundred dollars in federal taxes depending on their tax bracket.

Mortgage insurance doesn’t become “free”—but it becomes more tolerable when weighed against the real cost of refinancing.

Important Requirement: You Must Itemize Deductions

This deduction only applies if you itemize deductions instead of taking the standard deduction.

For 2026, the standard deduction is expected to be approximately:

• $15,000 for single filers
• $30,000 for married filing jointly

This benefit is most relevant for households that already itemize—or are close to itemizing once mortgage interest, property taxes, and insurance are combined. In higher-cost housing markets, this is more common than many people expect.

Which Properties Qualify?

The deduction applies to mortgage insurance on debt used to:

• Acquire
• Build
• Substantially improve a primary residence or a second home.

It is not limited to first-time buyers.

Why This Changes Refinance Decisions

Historically, the logic was straightforward:
Mortgage insurance is bad → refinance as soon as possible.

Now the better question is:

Does refinancing improve your after-tax position?

There are scenarios where keeping an existing FHA or PMI-backed loan longer may make sense, such as:

• You already have a favorable interest rate
• Mortgage insurance costs are moderate
• Refinancing would require points or high closing costs
• Your income qualifies for full or partial deductibility

The correct decision is no longer universal—it’s situational.

A Practical Reporting Note

Homeowners who pay $600 or more in mortgage insurance premiums during the year typically receive IRS Form 1098 from their lender. This form reports mortgage interest and may also include mortgage insurance premiums paid during the year. It’s always wise to verify this against closing documents and annual statements.

Final Thought

Mortgage insurance isn’t automatically dead money anymore.

It’s contextual.

Before refinancing solely to remove PMI or FHA MIP, it’s worth evaluating the full picture—interest rate, closing costs, time horizon, and now, tax treatment. In some cases, the smartest move may be staying put and planning strategically.

Disclaimer: Mortgage interest deductibility is subject to IRS rules, income limits, and individual tax circumstances. This content is for educational purposes only and is not tax advice. Consult a qualified tax professional regarding your specific situation. Loan programs and tax laws are subject to change.