How Much Interest on Mortgage Can You Deduct?
Understanding the tax deductions available to homeowners is crucial for maximizing financial benefits. One significant deduction that many homeowners can take advantage of is the interest on their mortgage. But how much interest on mortgage can you deduct? Let’s explore this topic in detail.
Eligibility for Mortgage Interest Deduction
To be eligible for the mortgage interest deduction, you must meet certain criteria. First, you must itemize deductions on your tax return rather than taking the standard deduction. Additionally, the mortgage must be on a primary or secondary home, and the loan must be secured by the property. According to the IRS, the mortgage must have been taken out after October 13, 1987, to qualify for the deduction.
Calculating the Deductible Interest
The amount of interest you can deduct on your mortgage depends on several factors. If you have a primary home and a secondary home, you can deduct the interest on both, but the total deduction is subject to certain limitations.
For your primary home, you can deduct the interest on the first $750,000 of mortgage debt if you obtained the loan after December 15, 2017. For loans taken out before that date, the limit is $1 million. The deduction also applies to the interest on a home equity loan, but the total debt must be less than the fair market value of the home.
Interest on a Secondary Home
In the case of a secondary home, you can deduct the interest on the first $100,000 of mortgage debt. However, this deduction is only available if you use the property as a second home for at least 14 days during the year or rent it out for 10 days or more.
Points and Closing Costs
It’s important to note that points and closing costs can also be deductible. Points are fees paid to obtain a mortgage, and they can be deductible in the year they were paid. Closing costs, on the other hand, can be deducted over the life of the mortgage.
Record Keeping and Documentation
To claim the mortgage interest deduction, you’ll need to keep detailed records and documentation, such as your mortgage statement, tax returns, and any other relevant documents. It’s advisable to consult with a tax professional to ensure you’re taking full advantage of the available deductions.
Conclusion
Understanding how much interest on mortgage you can deduct can help you save money on taxes. By meeting the eligibility criteria and following the guidelines set by the IRS, you can maximize your mortgage interest deduction and potentially reduce your tax liability. Always consult with a tax professional for personalized advice and assistance.
