The short answer is Yes, but with an attached disclaimer.
No matter if the mortgage insurance premium (MIP) is added to the mortgage or paid with cash by the borrower, the tax deduction is not affected.
The Important Details
Borrowers who have FHA loans are allowed a tax write-off on FHA mortgage insurance premiums paid upfront, however the deduction must be subtracted equally over the period when insurance coverage is in place. The IRS laws allow a mortgage insurance premium that was paid up front to be used as a deduction over the course of 84 months (7 years) or until you sell the home and subsequently the mortgage, whichever is less. If the other MIP deductions are satisfied by the homeowner, for the next seven years, one-seventh of the amount paid can be written off unless the home is sold before that time; once either of these occurs the tax write-offs stop.
For the borrower to get the maximum deduction, they will need to have an AGI under $100,000. The deductions are eliminated for an AGI more than $109,000 while it is in phases as it reaches $109,000. Every year IRS limits on various tax deductions may vary, so it is highly recommended that you are aware of the most recent IRS rules with regards to FHA mortgage insurance premium deductions by consulting with your tax advisor.
I hope this was helpful to those with FHA mortgages. If you need help with your mortgage matters, including purchasing or refinancing, connect with Bill on Google+