On a rental property PMI is tax deductible! PMI (Private Mortgage Insurance - also called Mortgage Insurance "MI" or Lender's Mortgage Insurance "LMI") is an insurance policy payable to the lender that covers their extra risk in the case a borrower defaults on a high loan to value (LTV) residential real estate loan. Typically PMI comes into play on loans that are over 80% LTV of the property.
A common misconception of this insurance is that the PMI payments are never tax deductible. For a personal residence this is generally true although there are provisions that are in place through 2011 (for now) allowing this deduction up to a certain income range on a primary residence. These exceptions may, or may not, be extended. For investment properties, however, this insurance is completely tax deductible as an expense on a rental property. Just as the interest paid on a loan is deductible, and property taxes are deductible, so are PMI payments!
This information is important when shopping for a loan. If you are financing more than 80% LTV of your investment property and are automatically considering two loans instead of a single loan just to get away from PMI you may be making a mistake. Two loans (one at 80% and a 2nd for a portion or all of the balance) may still be the better choice but don't automatically rule out the one loan products.
For a discussion of PMI and the differences between it and Mortgage Life Insurance please see PMI vs. Mortgage Life Insurance.