Form 1098 Box 5 in 2026: Mortgage Insurance Is Deductible Again

If you bought a home with a small down payment and spent the last few years looking at box 5 of your Form 1098 as a number with no tax value, this is the year that changes. Under the statute, the deduction stopped applying to premiums paid or accrued after 2021. Public Law 119-21 turned it back on. The catch is that the revival is not a blanket gift. It comes with the same income phase-out the provision always had, and Form 1098 itself does not tell you how much of the box 5 amount you can actually use.

What the law changed

The deduction lives in 26 U.S.C. 163(h)(3)(E). Clause (i) treats premiums for qualified mortgage insurance on acquisition debt as qualified residence interest, and clause (iv) used to switch that treatment off for amounts “paid or accrued after December 31, 2021.” Section 70108 of Public Law 119-21 added a new subclause to 163(h)(3)(F)(i) that reads: “Mortgage insurance premiums treated as interest.—Clause (iv) of subparagraph (E) shall not apply.” Subsection (b) of the same section sets the effective date: “taxable years beginning after December 31, 2025.”

In plain terms, premiums paid or accrued in 2026 count again. The effective date is 2026, so the law does not by itself change returns for earlier years. The IRS confirms the timing in the “What’s New” section of the draft 2026 Publication 936, released October 7, 2026: “The itemized deduction for qualified mortgage insurance premiums has been reinstated for tax year 2026. You can claim the deduction on line 8d of Schedule A (Form 1040) for amounts that were paid or accrued in 2026.” I walked through the form-side changes in the line-by-line look at the 2026 draft Schedule A; this guide stays on box 5.

What box 5 reports, and what qualifies

The Instructions for Form 1098 (Rev. December 2026) tell the lender to “enter the total premiums of $600 or more paid (received) for the tax year being reported, including prepaid premiums, for qualified mortgage insurance.” The $600 test is applied mortgage by mortgage, not across all of one person’s loans. A borrower with $450 of premiums on one loan may therefore see an empty box 5 even though the insurance is real.

Qualified mortgage insurance, in both the instructions and Publication 936, means insurance under a contract issued after December 31, 2006 and provided by the Department of Veterans Affairs, the Federal Housing Administration or the Rural Housing Service, or private mortgage insurance as defined in section 2 of the Homeowners Protection Act of 1998. The insurance also has to be tied to home acquisition debt secured by a first or second home. If you refinanced, check the acquisition-debt rules in Publication 936 before assuming the premiums count. If you are still paying PMI at all, it is worth asking whether you can stop; how to remove PMI covers the mechanics.

The income phase-out, step by step

The statute says the amount treated as interest “shall be reduced (but not below zero) by 10 percent of such amount for each $1,000 ($500 in the case of a married individual filing a separate return) (or fraction thereof) that the taxpayer’s adjusted gross income for the taxable year exceeds $100,000 ($50,000 in the case of a married individual filing a separate return).”

The phrase that matters is “or fraction thereof.” Read literally, being $1 over $100,000 counts as a full $1,000 step. I built the table below with a short Python routine that rounds the excess up to the next step, takes 10 percent per step, and caps the reduction at 100 percent, then checked it against the anchor the IRS gives for 2026: Publication 936 says no deduction is allowed above $109,000 ($54,500 MFS), which is exactly where the ninth step ends and a tenth begins.

For married filing separately, the same ladder applies with $500 steps starting at $50,000: $50,001 to $50,500 costs 10 percent, and $54,001 to $54,500 costs 90 percent, with nothing allowed above $54,500. The statute text of the phase-out contains no inflation adjustment, which is why Publication 936 can state the $109,000 and $54,500 cutoffs as fixed numbers.

One caution about the table. The IRS says to “complete the Mortgage Insurance Premiums Deduction Worksheet” in the instructions for line 8d, and those 2026 instructions had not been published when this was written. The 2021 version of the worksheet, the last one published before the deduction lapsed, told filers to increase the excess “to the next multiple of $1,000 ($500 if married filing separately),” turning $425 into $1,000 and $2,025 into $3,000, which is the rounding the table uses. The 2026 worksheet could still be written differently, so confirm against it before you file. The AGI you test is the figure on Form 1040 or 1040-SR, line 11b.

A worked example

Suppose a couple filing jointly paid $1,800 of FHA premiums in 2026 and reports an AGI of $104,300. The excess over $100,000 is $4,300, which rounds up to five $1,000 steps. That is a 50 percent reduction, so $900 of the premiums can be treated as interest. A couple at exactly $100,001 would keep $1,620 of the same $1,800, and a couple at $76,000 would keep all of it. The deduction is modest at best: it only helps if your total itemized deductions beat the standard deduction, which is the question standard vs itemized deduction walks through.

Why box 5 is not always the deductible number

Here is the trap the Form 1098 itself does not warn you about. The lender includes prepaid premiums in box 5. The borrower, however, cannot simply deduct what was prepaid. Publication 936 says that premiums “properly allocable to periods after the close of the tax year” are treated as paid in the period to which they are allocated, and that “you must allocate the premiums over the shorter of the stated term of the mortgage or 84 months, beginning with the month the insurance was obtained.” No deduction is allowed for the unamortized balance if the mortgage is satisfied before its term. The Form 1098 instructions point to the same treatment, noting that payments allocable to periods after 2007 are treated as paid in the periods to which they are allocable.

The IRS gives its own example. Ryan buys a home in May 2026 with a 15-year mortgage and prepays $9,240 of private mortgage insurance at closing. Because the loan runs 180 months, which is longer than 84, he spreads the premium over 84 months. That is $110 a month. For the eight months from May through December 2026 he can deduct $880 ($9,240 ÷ 84 × 8), with his AGI of $76,000 below the phase-out. For 2027 he can deduct $1,320 ($9,240 ÷ 84 × 12), if his AGI is $100,000 or less. I reran the arithmetic: eight months in 2026, twelve months in each of 2027 through 2032, and four months in 2033 add up to 84 months and exactly $9,240.

The practical lesson is that a large number in box 5 in the year you close may be mostly a prepayment. If you prepaid $9,240 and box 5 says $9,240, your 2026 deduction candidate is closer to $880 than to $9,240, before any phase-out.

The VA and USDA exception

Not every upfront charge gets stretched out. Publication 936 explains that the VA funding fee and the Rural Housing Service guarantee fee “can either be included in the amount of the loan or paid in full at the time of closing,” and that “these fees can be deducted fully in 2026 if the mortgage insurance contract was issued in 2026.” The 84-month paragraph ends by saying it “does not apply to qualified mortgage insurance provided by the VA or the RHS.” The Form 1098 instructions carve out the same two agencies from the prepaid rule.

The loan program therefore changes the timing. A borrower who financed a VA funding fee into the loan in 2026 may be able to deduct the whole fee in the first year, subject to the income phase-out, while an FHA borrower who prepaid the same dollar amount spreads it over seven years. If you are comparing the programs, FHA vs VA loan limits is a good place to start, though the tax difference is one more factor and rarely the deciding one. Publication 936 adds one practical instruction: if the deductible amount is not reported in box 5, contact the mortgage insurance issuer to determine it.

What to do before you file

Line up three pieces of paper. First, your Form 1098 for each mortgage, with attention to box 5 and the closing date. Second, for any loan closed in 2026 or earlier with prepaid insurance, the closing statement, so you can see how much was prepaid and when the contract began. Third, your projected AGI, since a few thousand dollars of income above $100,000 can cost a tenth of the deduction per step.

Then wait for the final instructions. Publication 936 for 2026 is still a draft, and the worksheet behind line 8d is not out yet. The statute, the box 5 definition and the 84-month rule are all settled in the sources below, but if the final worksheet says something different about rounding, the worksheet is what your return follows.

Sources

• Public Law 119-21, section 70108 (govinfo): https://www.govinfo.gov/content/pkg/PLAW-119publ21/html/PLAW-119publ21.htm
• 26 U.S.C. 163(h)(3)(E) and (F) (Legal Information Institute): https://www.law.cornell.edu/uscode/text/26/163
• IRS, Publication 936 (2026) draft, posted October 7, 2026, “What’s New” (PDF p. 2) and “Mortgage Insurance Premiums” (PDF pp. 10-11): https://www.irs.gov/pub/irs-dft/p936—dft.pdf
• IRS, Instructions for Form 1098 (Rev. December 2026), “Box 5. Mortgage Insurance Premiums” and “Prepaid Mortgage Insurance” (pp. 4-6): https://www.irs.gov/pub/irs-pdf/i1098.pdf
• IRS, 2021 Instructions for Schedule A (Form 1040), “Mortgage Insurance Premiums Deduction Worksheet—Line 8d” (p. A-10): https://www.irs.gov/pub/irs-prior/i1040sca—2021.pdf