Buying a home is one of the largest investments that most people make. There are many benefits of owning a home, and one of these benefits is the tax deduction on mortgage interest. The Internal Revenue Service (IRS) has a lot of rules regarding the eligibility to deduct interest from a mortgage. This means not everyone is eligible to receive a mortgage interest deduction.
Schedule A
You report mortgage interest paid over the tax year on Form 1040, Schedule A. If the total itemized deduction from your Schedule A is more than the standard deduction, you will save money on your taxes by itemizing. Other Schedule A tax deductions include property tax payment, qualified medical expenses and state tax payments. You should always check with a tax professional to make sure you itemize correctly. Reporting deductions incorrectly on your Schedule A can result in an audit and IRS penalties. Your mortgage lender will send you Form 1098 for the previous tax year by the end of January. This form will specify the exact amount of mortgage interest paid during the tax year.
Mortgage Qualifications
Not every mortgage qualifies for a mortgage interest deduction. You can only claim this deduction on interest paid on your primary residence or qualified second home. Additionally, married taxpayers filing a joint return can only deduct interest from the first $1,000,000 of mortgage debt. Single taxpayers and married taxpayers filing separate returns can only deduct interest on the first $500,000 of mortgage debt.
Requirements
You can only claim the mortgage interest deduction on homes that you personally use. This includes both your primary residence and a vacation home. If you use the second home as a full-time rental, it does not qualify for the mortgage interest deduction. Additionally, the mortgage interest only qualifies if it is from a secured debt on a qualified home.
Benefit and Limit
Getting a mortgage interest deduction is one of the benefits of owning a home. There are many incentives put in place by the government to encourage homeownership. The interest deduction helps make homeownership affordable for many taxpayers. In some cases, there is also an additional limit to the maximum amount of mortgage interest you can deduct yearly. Your gross yearly income will determine the maximum deduction you can take on your taxes.
