![]() ![]() Mortgage interest isn’t the only cost of homeownership that’s tax-deductible. However, thanks to the new standard deductions created by the 2017 Tax Act, a larger share of homeowners will not itemize their taxes and thus won’t be able to deduct mortgage interest. They like to claim that it increases the homeownership rate and helps people transform from renters to homeowners. Real estate agents and home builders still tout this tax deduction as an incentive to buy a home. This means their home mortgage interest is more likely to exceed the federal income tax’s new, higher standard deduction of $24,800 for couples filing jointly or $12,400 for individual tax filers. ![]() That’s because high-earning homeowners typically have larger mortgage balances and are more likely to buy a second home or vacation property- both of which increase tax-deductible mortgage interest payments. Writing off home acquisition debt tends to help homeowners with higher incomes. How the mortgage interest tax deduction helps homeowners Otherwise the interest must be reported on Schedule E as an investment property Be a part-time residence - Owners of second homes who also rent out their homes must live in the second home at least 14 days (or as much as 10% of the days the home is rented out if that number exceeds 14 days) to claim the deduction on Schedule A.Have basic accommodations - The home must have plumbing and other basic living requirements to qualify for the deduction.Secure the loan - Interest on a personal loan or credit card used for home improvements won’t go toward the tax deduction, because this debt isn’t secured by the property like home equity debt Other requirements to claim your deductionĪlong with staying within the IRS’s limits, to qualify for the mortgage interest tax deduction your home must: If you have a home equity loan or line of credit and the funds were NOT used to buy, build, or substantially improve your home, then the interest cannot be deducted. You can deduct interest payments on home equity loans and lines of credit, too, as long as the debts were used to pay for home improvements or to purchase or build your home. The $1 million limit also applies to homeowners who entered a binding purchase agreement between December 16, 2017, and January 1, 2018.For home loan taken out after October 13, 1987, and before December 16, 2017, homeowners can deduct interest on mortgage debt up to $1 million (or $500,000 if married and filing separately).For any home loan taken out on or before October 13, 1987, all mortgage interest is fully deductible.If you are married and filing separately from your spouse, you can deduct interest payments on mortgage debt up to $375,000 each tax yearįor mortgages taken out prior to 2018, the rules are a bit different.If you are single or married and filing jointly, and you’re itemizing your tax deductions, you can deduct the interest on mortgage debt up to $750,000.The amount of mortgage interest you can deduct depends on the type of home loan you have and the way you file your taxes. You may also be able to deduct interest on a home equity loan or line of credit (HELOC), as long as the loan was used for one of those three purposes. ![]() This includes any mortgage loan used to buy, build, or improve your home. Since 2017, if you take the standard deduction, you cannot deduct mortgage interest.įor the 2020 tax year, the standard deduction is $24,800 for married couples filing jointly and $12,400 for single people or married people filing separately.īut if you use itemized deductions instead of claiming the standard deduction, you can deduct the interest you pay each tax year on mortgage debt. The Tax Cuts and Jobs Act of 2017 changed the rules for the mortgage interest deduction. Who qualifies for the mortgage interest deduction?
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