One of the tax deductions that many homeowners have been happy to take since 2007 has been the deduction for the premiums paid for Private Mortgage Insurance (PMI). The tax deduction was slated to expire at the end of 2010, but the tax package passed by Congress last December extended it through 2011. That means that you still have this year to claim PMI payments as a deduction on Schedule A of your Form 1040. (Yes, you have to itemize to take this deduction.)

What is PMI?

Private Mortgage Insurance is designed to protect lenders in the event that you default. You pay mortgage insurance premiums in order to help the lender recoup losses if you stop making payments. Most lenders require borrowers to purchase PMI if you don’t make a 20% down payment on the home.

PMI payments change each year, accounting for a percentage of the outstanding balance. The annual premium …

Lenders use private mortgage insurance, known simply as PMI, to insure their loans against potential default. PMI also adds another layer of security on top of the normal underwriting procedures banks use to qualify their borrowers.