Mortgage insurance premiums are deductible again. For most households that pay them, the deduction is worth far less than cancelling the policy, which is the step it may tempt them to put off. Take a household paying $180 a month in PMI, or $2,160 a year. Deducting the premium returns only the household's marginal tax rate times that amount, and only if it itemizes and its income falls below the cutoff. Cancelling the policy returns the full $2,160, every year, to anyone who qualifies.

The deduction itself is real and permanent. Section 70108 of the One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, restored it from tax year 2026 onward. It had lapsed for tax years 2022 through 2025. It covers premiums paid during 2026, which are claimed on returns filed in 2027, so the 2025 return filed this spring received nothing from it. It also leaves untouched the federal rules that let a borrower stop paying the premium altogether.

How the deduction is calculated

The IRS's draft Publication 936 for 2026 treats qualified mortgage insurance premiums as home mortgage interest. They are claimed on line 8d of Schedule A, so the deduction is available only to taxpayers who itemize. The insurance has to be tied to acquisition debt secured by a first mortgage on a qualified residence, which means a primary home or one second home and never a rental. The same balance caps apply as for mortgage interest: $750,000 ($375,000 married filing separately) for loans originated after December 15, 2017, and $1,000,000 for older loans. Eligible coverage includes conventional PMI, FHA MIP, VA funding fees and USDA guarantee fees on contracts issued after 2006. Monthly premiums are deductible in the year they are paid. Upfront premiums must be spread over the shorter of the loan term or 84 months. The amount paid appears in Box 5 of Form 1098.

Then comes the income test. The deduction shrinks by 10% for every $1,000 of adjusted gross income above $100,000 ($50,000 married filing separately). The sources disagree on where it reaches zero. TaxAudit and Better.com put the cutoff at $109,000, while two others say $110,000. The cautious course is to assume nothing survives above $109,000. TaxAudit's own example is a couple at $104,000 who paid $1,500 in premiums. They lose 40%, or $600, and deduct $900.

One premium, three incomes

What $180 a month in PMI is worth at tax time

Hypothetical: a married couple filing jointly who itemize, pay $2,160 a year in PMI, and face an assumed marginal tax rate of 22%. The tax saving equals the deductible amount times that rate.

AGI under $100,000: deductible / tax saved$2,160 / about $475
AGI $104,000 (40% phased out): deductible / tax saved$1,296 / about $285
AGI $109,000 or more: deductible / tax saved$0 / $0
Same couple, not itemizing, any income$0
PMI cancelled, any income, itemizing or not$2,160 a year

In the best case, the deduction returns roughly 22 cents of every premium dollar. Cancellation returns all of it, and for this household it is worth between four and a half times the deduction and infinitely more.

The strongest objection is that cancellation has costs of its own. Reaching 80% of original value early can require extra principal, and that money has other uses: a renovation fund, a tuition bill, an emergency cushion. The servicer may also ask for an appraisal. These are fair points, and for some households the prepayment does not pay. The deduction barely changes that calculation, though. At best it lowers this couple's yearly PMI cost from $2,160 to about $1,685. If prepaying to reach 80% made sense before the law changed, it still makes sense now. If it did not, the deduction was never the reason.

Two things it is not

Deducting PMI Cancelling PMI
What it returns Marginal rate times the premium 100% of the premium
Income limit Phases out from $100,000 AGI, gone by $109,000 to $110,000 None
Requires itemizing Yes No
When it applies Premiums paid from January 1, 2026; claimed in 2027 The month the conditions are met
Does it end the premium No Yes

The deduction is not retroactive, so no amended 2025 return will recover premiums paid that year. It is also not a reason to keep paying PMI. Better.com and RefiGuide both treat it as a partial offset that ranks behind getting rid of the premium.

The levers that do move money

The Homeowners Protection Act sets the thresholds for borrower-paid PMI on conventional loans that closed on or after July 29, 1999. Under the CFPB's summary of the rules, a borrower may ask for cancellation once the balance is scheduled to reach, or actually reaches, 80% of original value. Original value is the lower of the purchase price or the appraised value at purchase. The servicer must end PMI automatically when the balance is scheduled to hit 78%, or at the loan's midpoint (year 15 of a 30-year loan) at the latest, provided the borrower is current. The space between 80% and 78% is premium paid for no reason other than not having asked.

There is also a newer lever. On September 15, 2026, FHFA Director Bill Pulte directed Fannie Mae to match Freddie Mac and allow servicers to contact borrowers about cancelling PMI when rising home values have pushed them toward the threshold. A borrower who sends the written request first does not have to wait for that call.

Some homeowners are nowhere near 80% of their original value but have seen their homes appreciate. For them, refinancing is the third route, because a refinance resets original value to the new appraisal. Whether it pays depends on the new rate and the closing costs measured against the PMI it eliminates, and only real quotes can answer that.

The practical sequence follows from all this. Find the month the amortization schedule crosses 80%, put the cancellation request in writing that month, and count the deduction only on premiums the household could not legally stop paying.