The mortgage interest tax deduction is one of the most popular in the US tax code. It allows you to deduct, within limits, the interest you pay on your mortgage. This valuable tax deduction is available to homeowners who itemize their federal income tax deductions.
So, if you are a homeowner, you can probably deduct the interest on your mortgage. According to the IRS, for any property to qualify as a home, it must have sleeping, cooking, and toilet facilities.
To be eligible for home mortgage interest deduction you must file form 1040 or 1040-SR and itemize deductions on Schedule A. Plus, you need to ensure the mortgage is a secured debt on a qualified home in which you have an ownership interest.
You can claim the deduction if you are the primary borrower or you are legally obligated to pay the debt and you actually make the payments. If you and your spouse sign for the loan, then both of you are primary borrowers. If you pay your ward’s mortgage to help them out, you can claim a deduction on the interest as long as you co-sign the loan.
You can claim a deduction for all of the interest you paid during the year if your mortgage fits into one of the following categories:
- Mortgages you took out on your main home or second home on or before October 13, 1987. This is called Grandfathered Debt.
- Any mortgage you took out post-October 13, 1987, to buy or to improve your primary or secondary home is deductible as long as throughout 2021 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 if you are married and filing separately from your spouse).
- Any mortgage you or your spouse took after December 15, 2017, to buy/build/improve your primary or second home but only if throughout 2021 these mortgages plus any grandfathered debt totaled $750,000 or less ($375,000 or less if married filing separately).
A different set of tax rules apply to the mortgage deduction depending on whether your second home is considered a rental or personal property.
Now, in order to maximize your mortgage interest deduction, you must claim all your itemized deductions so they exceed the standard income deduction permitted by the IRS.
But, due to the TCJA of 2017, the maximum mortgage amount eligible for the deductible interest went down from $1 million to $750,000 for new loans. Moreover, the revenue act also resulted in higher standard deductions, making it unnecessary for many taxpayers to itemize.
So, if you bought a house after Dec. 15, 2017, you can deduct interest on the first $750,000 of the mortgage, but do keep in mind that the federal standard deduction is high enough that it is difficult for you to claim the mortgage interest deduction unless you earn a substantial income.
The higher your income and the larger your mortgage (up to the $750,000 limit).
The mortgage interest deduction allows you to lower your taxable income by the amount of money you’ve spent in paying the mortgage interest during the year. So if you have a mortgage, keep a track of all the records — the interest you’re paying on your home loan can help cut your tax bill. If the entire process of expense tracking seems daunting, try FlyFin. It’s an A.I.-powered expense tracking app that scans your expenses and automatically finds deductions.
Plus, when it comes to any sort of complicated expenses such as the home mortgage interest, the app allows you to consult an expert team of CPAs to help you determine if you qualify for a tax deduction.
