ICOUNT Posted January 25, 2009 Report Share Posted January 25, 2009 I have a client that couldn't sell her previous home so she rented it during 2008. She paid mortgage insurance premiums on the rental mortgage in 2008. Is this deductible on schedule E. I think not -since mortgage premiums are only deductible on her residence. Agree? Thanks Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted January 25, 2009 Report Share Posted January 25, 2009 It is a business expense now. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted January 25, 2009 Report Share Posted January 25, 2009 It is a business expense now. I think since the property is now a rental, the mortgage insurance would be a business expense included on the schedule E Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted January 25, 2009 Report Share Posted January 25, 2009 Read Pub 527. taxbilly Quote Link to comment Share on other sites More sharing options...
jainen Posted January 25, 2009 Report Share Posted January 25, 2009 >>It is a business expense now. << The answer assumes, of course, that the proceeds of the mortgage were used to acquire or improve the property, although nothing in the original post suggested this was the case. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted January 25, 2009 Report Share Posted January 25, 2009 I inferrd it was a personal residence converted to rental. Qualified mortgage is a personal requirement for Schedule A and there is no such requirement for Schedule E. Quote Link to comment Share on other sites More sharing options...
jainen Posted January 25, 2009 Report Share Posted January 25, 2009 >>there is no such requirement for Schedule E<< Yes, there is in fact a very similar requirement. See the instructions for Lines 12 and 13 of Schedule E, as well as Chapter 4 of Pub 535. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted January 25, 2009 Report Share Posted January 25, 2009 Sorry, I have read them and no such require exists for pmi on a business loan. Yes, there is in fact a very similar requirement. See the instructions for Lines 12 and 13 of Schedule E, as well as Chapter 4 of Pub 535. Lines 12 and 13 In general, to determine the interest expense allocable to your rental activities, you must have records to show how the proceeds of each debt were used. Specific tracing rules apply for allocating debt proceeds and repayment. See Pub. 535 for details. If you have a mortgage on your rental property, enter on line 12 the amount of interest you paid for 2008 to banks or other financial institutions. Be sure to enter the total of all your mortgage interest in the “Totals” column even if you have only one property. Do not deduct prepaid interest when you paid it. You can deduct it only in the year to which it is properly allocable. Points, including loan origination fees, charged only for the use of money must be deducted over the life of the loan. If you paid $600 or more in interest on a mortgage during 2008, the recipient should send you a Form 1098 or similar statement by February 2, 2009, showing the total interest received from you. If you paid more mortgage interest than is shown on your Form 1098 or similar statement, see Pub. 535 to find out if you can deduct part or all of the additional interest. If you can, enter the entire deductible amount on line 12. Attach a statement to your return explaining the difference. On the dotted line next to line 12, enter “See attached.” Note. If the recipient was not a financial institution or you did not receive a Form 1098 from the recipient, report your deductible mortgage interest on line 13. If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on the mortgage, and the other person received Form 1098, report your share of the deductible interest on line 13. Attach a statement to your return showing the name and address of the person who received Form 1098. On the dotted line next to line 13, enter “See attached.” This is about interest not pmi. Also, Pub 535 refers to interest. That being said, a case maybe can be made that, under the Arrowsmith doctrine, that the pmi should be allocated based upon the use of the proceeds from the loan. Quote Link to comment Share on other sites More sharing options...
jainen Posted January 25, 2009 Report Share Posted January 25, 2009 >>no such require exists for pmi on a business loan<< I hope nobody is asking about a business deduction for PMI on a NON-business loan. My reference to Schedule E and Pub 535 was for the definition of a business loan. Taxbilly cited Pub 527, perhaps to point out that mortgage insurance is not even mentioned in the same category with other insurance covering business assets and activity. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted January 25, 2009 Report Share Posted January 25, 2009 Insurance is a special case for a deduction, however, "Among the items included in business expenses is the cost of insurance if the insurance is connected with the taxpayer's trade, business, or profession." A rental property is consider a "trade or business". "She paid mortgage insurance premiums on the rental mortgage in 2008." PMI on your personal residence mortgage (non-business) is deductible subject to the rules you have cited on Schedule A, if one is itemizing. The deduction for pmi on rental properties goes back along way, so it ain't something new. Quote Link to comment Share on other sites More sharing options...
jainen Posted January 26, 2009 Report Share Posted January 26, 2009 >>pmi on rental properties<< The fact that the loan is secured by rental property is completely irrelevant. The only question is whether the loan proceeds were used in the rental activity, such as purchasing or improving the property. In the original post it was called a "rental mortgage," but apparently the loan was in place previously so that is not a clear description. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted January 26, 2009 Report Share Posted January 26, 2009 "The fact that the loan is secured by rental property is completely irrelevant. The only question is whether the loan proceeds were used in the rental activity, such as purchasing or improving the property." "Among the items included in business expenses is the cost of insurance if the insurance is connected with the taxpayer's trade, business, or profession." "If the loan proceeds were used in a trade or business, or an activity for profit, then the pmi is deductible in that activity." Question, if I pay cash for a rental property, and, later finance (take out a mortgage) on the rental property. The loan is 90% of the purchase price. The proceeds are in my bank account. Would the pmi be deductible as a rental expense. Question, if I pay cash for a rental property, and, later finance (take out a mortgage) on the rental property. The loan is 110% of the purchase price, the additional 10% represents rental expenses I paid out of pocket. The proceeds are in my bank account. Would the pmi be deductible as a rental expense. Thank you for your response. Note, sometimes pmi is paid up front for the term of the loan (think apartment complex (HUD loans)), and would be capitalized into the project and depreciated, if incurred during the construction phase, or if incurred after construction is complete amortized over the life of the loan. The pmi can run into hundreds of thousands of dollars. Quote Link to comment Share on other sites More sharing options...
jainen Posted January 26, 2009 Report Share Posted January 26, 2009 >>the additional 10% represents rental expenses I paid out of pocket. The proceeds are in my bank account<< I'm not comfortable with the scenario, but I might be convinced with reasonable facts and circumstances. It would have to clearly be a BUSINESS bank account with the money designated (and actually to be used) for a specific business purpose. This is a very unlikely arrangement for individuals with a residential rental. As for reimbursing oneself for expenses previously incurred, I don't believe that is a very strong position in terms of the tracing rules. Again, excellent documentation with a clear business purpose might make it stronger. In particular, there is an exception for construction loans; perhaps something could be developed along those lines. But I doubt it. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted January 26, 2009 Report Share Posted January 26, 2009 Thanks, I appreciate your answer. Quote Link to comment Share on other sites More sharing options...
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