Bill introduced to restore mortgage insurance tax benefit

A bipartisan group of lawmakers from the House of Representatives put forward legislation this week to reintroduce and expand a tax deduction benefit previously offered to mortgage borrowers.

Reps. Vern Buchanan, R-Fla., and Jimmy Panetta, D-Calif., this week submitted the Middle Class Mortgage Insurance Premium Act, which would restore the allowable deduction for MIPs paid by homeowners on their annual tax returns. 

If passed, the bill would permanently extend the benefit and increase the household income limit for eligibility from $100,000 to $200,000. Previous policy allowing for MIP-related deductions with the lower limit was offered between 2007 and 2021.      

"The costs of mortgage insurance can make buying a home that much more difficult for working families," Panetta said in a press release. "Despite today's challenging housing market, this type of fix to modernize this tax provision would help more Americans."

"It's our responsibility to provide tax relief for middle-class families seeking to own a home," Buchanan added. "My bipartisan legislation will help make the American Dream of homeownership real for millions."

The Florida representative also serves as vice chairman of the House Ways and Means Committee. 

Buyers who put down less than a 20% down payment are typically required to buy mortgage insurance. As of 2020, 4.6 million borrowers nationwide had purchased insurance coverage, accounting for over 40% of all loans backed by government-sponsored enterprises or federal agencies, based on calculations made by Urban Institute. 

In the 14-years the previous tax policy was in place, the deduction was claimed 44.5 million times representing a total of $64.7 billion saved, according to industry trade group U.S. Mortgage Insurers. 

The average yearly deduction over the full period averaged $1,454 per taxpayer, USMI also noted in support of its reintroduction, describing the policy as "common-sense legislation."

"Unfortunately, its expiration has deprived millions of low- and moderate-income taxpayers from benefitting from this deduction in recent years. The Middle Class Mortgage Insurance Premium Act is a positive step towards putting money back in the pockets of taxpayers and making homeownership more affordable for American families," said USMI President Seth Appleton in a statement.

Along with bipartisan Congressional support, the previous policy also enjoyed backing from a wide swath of trade groups, consumer advocates and civil rights organizations, Appleton said. 

"We commend Reps. Buchanan and Panetta for their continued leadership on this issue and urge Congress to pass the bill as part of its holistic examination of the tax code during the reconciliation process."

Since the previous policy lapsed, multiple bills sponsored by both Democrats and Republicans to restore the tax deduction were put forth, but none made their way into law. Buchanan introduced similar legislation in last year's congressional session. 

In addition to Buchanan and Panetta, the latest bill was co-sponsored by nine additional members of Congress representing both political parties. 

Their legislation is the second bipartisan effort to support housing affordability in as many weeks to come out of Congress, after the reintroduction of the Neighborhood Homes Reinvestment Act earlier this month. The House bill, which was also proposed earlier this decade, aims to restore and create affordable housing through tax credits to developers and financing groups.