Unlock Your Biggest Tax Break: Can You Deduct Mortgage Interest?

Are you wondering if mortgage interest is deductible? The answer is yes, but only if you adhere to specific IRS guidelines and choose to itemize your deductions instead of taking the standard option. To navigate this tax benefit effectively, it’s important to understand the ins and outs of the mortgage interest deduction, its eligibility criteria, and how to estimate your potential deduction amount.

Can you deduct mortgage interest on your taxes?

• To qualify for a tax deduction on mortgage interest, your home must be considered a qualified property, either your primary residence or a second home.
• A qualified residence includes various property types such as houses, boats, mobile homes, condominiums, co-ops, and house trailers.
• You may also be eligible for the deduction if you use funds from a home equity loan or line of credit for home improvements, the loan is secured by your main or second home, and you meet other IRS requirements.

How does the mortgage interest deduction work?

If you want to claim the mortgage interest deduction, follow these steps:

• Look for Form 1098 from your mortgage lender, which outlines the interest you paid during the year.
• Enter your mortgage interest paid on Schedule A to determine your itemized deductions.
• Compare your itemized deductions to the standard deduction to see which option is more beneficial.
• Maintain clear records of your mortgage expenses for future reference and IRS inquiries.

How much mortgage interest can you deduct?

• For loans obtained on or after December 16, 2017, you can deduct interest on mortgage debt up to $750,000.
• Exception: If you entered into a mortgage contract before December 15, 2017, with plans to close by January 1, 2018, and actually closed by April 1, 2018, you can still claim deductions on mortgage debt up to $1 million.

Why is my mortgage interest no longer deductible?

Your mortgage interest may no longer be tax deductible for various reasons:

• Opting for the standard deduction rather than itemizing.
• Using a home equity loan for non-home improvement purposes.
• Selling the property or not paying mortgage interest for a year.
• Turning a second home into a rental property.
• Income exceeding specified thresholds for itemized deductions.

Should you itemize mortgage interest or take the standard deduction?

Choose between itemizing or taking the standard deduction based on your financial situation. Each option has its pros and cons, so weigh them carefully to reduce your taxable income effectively.

What mortgage costs are tax deductible?

In addition to mortgage interest, other deductible expenses include:

• Mortgage points paid upfront.
• Property taxes up to a certain limit.
• Distressed property losses resulting from natural disasters.

How to calculate your mortgage interest deduction:

To ascertain whether itemizing your deductions outweighs the standard option, TurboTax offers a calculator that compares both methods and determines the best tax-saving approach for you.

By understanding mortgage interest deductions and related costs, you can maximize your potential tax benefits and ensure you are making the most financially sound decisions.