Mortgage interest: Is it tax-deductible?

Profile Picture
By: sanderspatricia29
on 9th Dec,2015

Do you know that mortgage interest is a tax-deductible expense? Check out important things before claiming for mortgage interest deduction.
mortgage-interest-deduction

Buying a home is the most expensive thing that happens with almost everyone. Home buying results in various kinds of costs, especially the cost of the mortgage. The good thing is, many expenses are tax deductible. Tax breaks are available on any kind of homes such as single-family residence, mobile home, cooperative apartment, and townhouse.

Tax deduction on mortgage interest

Your mortgage interest is a tax-deductible expense. There are various schedules under which you need to file the deductions. The mortgage interest deductions can help you in significantly reducing the amount of your tax bills for the year. The Internal Revenue Service or the IRS permits you in deducting the interest on the very first $1 million of the mortgage that you've taken out to finance your home. Remember, if you’re planning to file as married, then you can only deduct the interest on the first amount of $500,000. You’ll have to opt for itemized deduction to claim the interest rate deduction on the mortgage. At the time of claiming the deduction, you need to include the Form 1098.

Things to know before claiming for mortgage interest deduction

  • The mortgage interest includes the interest that you have paid on the mortgage loans to buy a home, the home equity lines of credit, and the payments on the construction loans for your home.
  • You are allowed to deduct only the interest that is paid on the main home or on the second home. But, the interest, which is paid on the third or the fourth homes, is not at all tax deductible.
  • You need to use a mortgage tax deduction calculator to understand the tax deduction in a better way. Thus, you can understand how the payments on mortgage interest are deductible from your federal based income taxes.
  • The calculator will help you to get the total interest rate charges on the mortgage and also the tax deductions. It’ll also provide you an amortization table on the mortgage.

Limitations of mortgage interest deduction

One of the most complex tax breaks is the mortgage interest tax deduction. If you’re not eligible for the tax break and claims for the deduction, then you may fall into trouble with the IRS. Some limitations are as follows:

  1. You need to fill out the 1040 Form.
  2. You should have the legal liability for the loan unless you can’t deduct the payments that you make for another person. For instance, in case you’re making payments on a mortgage that was taken out by your relative, you’ll not be eligible to get any tax breaks.
  3. The mortgage loan should be a secured debt on which you have an ownership interest.
  4. You need to build a true debtor-creditor relationship.

Final words

Most of the homeowners think that the biggest amount of their check goes towards making the mortgage payments. They need to pay the interest as well. So, getting tax deductions on the mortgage interest can be a relief for you, as a homeowner.

Check out: How can you reduce your mortgage interest rate?

0
No votes yet


Page loaded in 0.632 seconds.