has long been a part of the American dream, and it opens the door to benefits
like the mortgage interest deduction for those who itemize deductions on their
typically makes sense only if itemized deductions on a primary and second home
total more than the standard deduction, which nearly doubled in 2018.
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what you need to know about the mortgage interest deduction.
Related: 6 simple ways to reduce your mortgage payment
What Is the Mortgage Interest Deduction?
deduction allows itemizers to count interest they pay on a loan related to
building, purchasing, or improving a primary home against taxable income,
lowering the amount of taxes owed.
deduction also applies if you pay interest on a condominium, cooperative,
mobile home, boat, or recreational vehicle used as a residence. The deduction
can also be taken on loans for second homes, as long as it stays within the
with an income tax may also allow homeowners to claim the mortgage interest
deduction on their state tax returns, whether or not they itemize on their
What Are the Rules and Limits?
passage of the Tax Cuts and Jobs Act of 2017 was a game-changer for the
mortgage interest deduction. Starting in 2018 and set to last through 2025, the
law greatly increased the standard deduction and eliminated or restricted many
2021 tax year, the standard deduction is $25,100 for married couples filing
jointly and $12,550 for single people and married people filing separately. For
2022, the standard deduction is $25,900 for married couples filing jointly and
$12,950 for single people and married people filing separately.
itemize deductions, you’re good to go and can deduct the interest. There’s
further good news, as you may also be able to deduct interest on a home equity
loan or line of credit, as long as it was used to buy, build, or substantially
improve your home.
must be secured by the taxpayer’s main home or second home and meet other
requirements. For tax purposes, a second home not used for income is treated
much like one’s primary home. It’s a home you live in some of the time.
considers a second home that’s rented some of the time one that you use for
more than 14 days, or more than 10% of the number of days you rent it out
(whichever number of days is larger). If you use the home you rent out for
fewer than the required number of days, it is considered a rental property—one
that you never live in, and not eligible for the mortgage interest deduction.
your interest-only mortgage is 100% deductible,
as long as the total debt meets the limits.
to the Internal Revenue Service, you can deduct home mortgage
interest on the first $750,000 ($375,000 if married filing
separately) of debt. Higher limitations ($1 million, or $500,000 if married
filing separately) apply if you are deducting mortgage interest from debt
incurred before Dec. 16, 2017.
can’t deduct home mortgage interest unless the following conditions are met.
You must file Form 1040 or 1040-SR and itemize deductions on Schedule A (Form
• The mortgage must be a secured debt on a qualified home in
which you have an ownership interest.
put, your mortgage is a secured debt if you put your home up as collateral to
protect the interests of the lender. If you can’t pay the debt, your home can
then serve as payment to the lender to satisfy the debt.
qualified home is your main home or second home. The home could be a house,
condo, co-op, mobile home, house trailer, or a houseboat. It must have
sleeping, cooking, and toilet facilities.
that the interest you pay on a mortgage on a home other than your main or
second home may be deductible if the loan proceeds were used for business,
investment, or other deductible purposes. Otherwise, it is considered personal
interest and is not deductible.
How Much Can I Deduct?
you want the answer to that question. In most cases, you can deduct all of your
home mortgage interest. How much you can deduct depends on the date of the
mortgage, the amount of the mortgage, and how you use the mortgage proceeds.
says that if all of your mortgages fit into one or more of the following three
categories at all times during the year, you can deduct all of the interest on
those mortgages. (If any one mortgage fits into more than one category, add the
debt that fits in each category to your other debt in the same category.)
1. Mortgages you took out on or before
Oct. 13, 1987 (called grandfathered debt).
2.Mortgages you (or your spouse if
married filing jointly) took out after Oct. 13, 1987, and prior to Dec. 16,
2017, to buy, build, or substantially improve your home, but only if throughout
2020 these mortgages plus any grandfathered debt totaled $1 million or less
($500,000 or less if married filing separately).
3. (There is an exception. If you
entered into a written contract before Dec. 15, 2017, to close on the purchase
of a principal residence before Jan. 1, 2018, and you purchased the residence
before April 1, 2018, you are considered to have incurred the home acquisition
debt prior to Dec. 16, 2017.)
4. Mortgages you (or your spouse if
married filing jointly) took out after Dec. 15, 2017, to buy, build, or
substantially improve your home, but only if throughout 2020 these mortgages
plus any grandfathered debt totaled $750,000 or less ($375,000 or less if
married filing separately).
The dollar limits for the second and
third categories apply to the combined mortgages on your main home and second
What Are Special Circumstances?
sometimes isn’t black or white, but gray. Just like you need to understand your
home loan options, you need to know the special situations where the IRS says
you might or might not qualify for the mortgage interest deduction.
You can deduct
these items as home mortgage interest:
- A late payment charge if it wasn’t for a specific service
performed in connection with your mortgage loan.
- A mortgage prepayment penalty, provided the penalty wasn’t for a
specific service performed or cost incurred in connection with your mortgage
You cannot deduct the interest paid for you if you qualified for mortgage
assistance payments for lower-income families under Section 235 of the National
Is Everything Deductible?
government is only so generous. There are a lot of costs associated with
homeownership. Many of them are not tax deductible under the mortgage interest
deduction, like homeowners insurance premiums.
caveat: You might be able to write off a portion of insurance, as well as
utilities, repairs, and maintenance, if you have a home office and deduct those
expenses on Schedule C.
not on the list for inclusion in the mortgage interest deduction are title
searches, moving expenses, and reverse mortgage interest. Because interest on a
reverse mortgage is due when the property sells, it isn’t tax deductible.
How to Claim the Mortgage Interest
itemizer will file Schedule A, which is part of the standard IRS
1040 tax form. Your mortgage lender should send you an IRS 1098 tax
form, which reports the amount of interest you paid during the tax year. Your
loan servicer should also provide this tax form online.
your 1098 tax form, find the amount of interest paid and enter this on Line 8
of Schedule A on your tax return. It’s not a heavy lift but gets a tad more
complicated if you earn income from your property. If you own a vacation home
that you rent out much of the time, you’ll need to use Schedule E.
if you’re self-employed and write off business expenses, you’ll need to enter
interest payments on Schedule C.
take the mortgage interest deduction if you itemize deductions on your taxes.
Keep in mind that it’s typically only worth taking if the write-offs exceed the
mortgage interest deduction, though, can be a bonus of sorts, especially if
you’re a homeowner with a second home.
all matters that affect your taxes, you’ll want to consult with your financial
advisor about claiming the deduction.
- Understanding the different types of mortgage loans
- What is a piggyback mortgage loan & how does it work?
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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