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Ryan Bill Would Allow Deductions for Mortgage Insurance Premiums

Congressman Introduces Legislation to Permit New Tax Deduction, Help More Wisconsin Families Become Homeowners  

WASHINGTON – Wisconsin’s First District Congressman Paul Ryan today will introduce legislation that would allow homeowners with insured mortgages to claim an itemized tax deduction for mortgage insurance premiums paid or accrued during the year.  The bipartisan measure would particularly help first-time and low-income home buyers by giving them access to tax benefits similar to those enjoyed by home buyers who are able to make large down payments.  It is estimated that 12 million existing homeowners would benefit from this initiative.  

 Under current law, mortgage insurance payments are not tax-deductible.  This raises the cost of homeownership for those who otherwise benefit from mortgage insurance programs – typically first-time, low-income and veteran borrowers who are trying to purchase their own home.  Mortgage insurance enables these prospective buyers to make a down payment of 3 percent or less of the appraised value of a home.  Rep. Ryan’s proposal would lower the cost of homeownership by making mortgage insurance payments tax-deductible. 

 Under the congressman’s plan, the new tax deduction would apply to both government and private mortgage insurance.  Mortgage insurance provided by the Veterans Administration, the Federal Housing Administration (FHA) or the Rural Housing Administration would qualify, as would private mortgage insurance. 

The tax policy change would bring real benefits to Wisconsin and its First Congressional District.  Roughly 149,000 Wisconsin families held mortgages with either FHA or private mortgage insurance at the end of 2002.  Insured mortgages covered 18 percent of home loans originated in Wisconsin in 2001.  This number is even higher for certain demographics.  For example, insurance covered 30 percent of the mortgage loans made to Hispanic borrowers in Wisconsin and 28 percent of the loans made to African-American borrowers.  Looking at a portion of the First District, in 2002 over 17,370 families in Racine, Kenosha and Walworth counties had mortgages that were insured by either FHA or private mortgage insurers.

“Making mortgage insurance premiums tax-deductible is simply good policy,” Ryan said. “It will help open the doors of homeownership for more lower and middle-income buyers who might otherwise be discouraged by the mounting costs of purchasing a home.  The IRS allows a deduction for interest paid on a home, it should extend the same benefit to those who cannot afford a large down payment and instead rely on mortgage insurance as the path to homeownership.”

The mortgage insurance premium deduction would apply in full for homeowners and home buyers whose adjusted gross income for the taxable year is less than or equal to $100,000.  Above that income level, the deduction would be phased out.

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