Complete Guide to Claiming Your Mortgage Interest Deduction

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The IRS mortgage interest tax deduction can reduce your taxable income by allowing you to write off the interest you pay on your home loan during the tax year:

• If you took out your mortgage before Dec. 16, 2017 and used it to buy, build, or improve your home, you’re able to deduct the mortgage interest you paid on the first $1 million of your mortgage ($500,000 if married filing separately).
• If you took out your mortgage after Dec. 15, 2017 and used it to buy, build, or improve your home, you’re able to deduct the interest paid on the first $750,000 of your mortgage ($375,000 if married filing separately).

Here’s what you should know about qualifying for the mortgage interest deduction and how to deduct it:

How the mortgage interest deduction works

The mortgage interest deduction reduces your taxable income and also reduces your tax liability, making the deduction an important perk of owning a home.

If you’re not sure how much interest you’ve paid on your mortgage, don’t worry. Your mortgage servicer keeps track of how much interest and mortgage insurance you pay throughout the year.

Assuming you paid more than $600 in interest, points, and mortgage insurance premiums, your servicer will send you IRS Form 1098, the Mortgage Interest Statement, showing how much you paid. Keep this form handy when you work on your tax return.

Find Out: How Much Does It Cost to Buy a Home?

What qualifies for a mortgage interest deduction?

Not all types of mortgage loans qualify for the home mortgage interest deduction. To determine what and if you can claim, you first need to determine whether you’re eligible.

First, you should ensure:

1. The mortgage debt is secured by the home — meaning your home serves as collateral for the loan.
2. The home must be your primary home or a second home. If the mortgage is secured by a second home that you rent out, you might still be able to deduct the interest, but only if you use the home enough days during the year according to the IRS. . If you don’t rent it out, you don’t need to have stayed there to claim the deduction.

In addition to the above, one of these must be true for your loan to be eligible for the mortgage interest deduction:

• You took out your mortgage loan before December 16, 2017, to buy, build, or substantially improve your home, and your total mortgage debt for which you’re deducting interest totaled less than $1 million through 2019 — $500,000 or less for married taxpayers filing individually.
• You took it out after December 15, 2017, to buy, build, or substantially improve your home, and your total mortgage debt for which you’re deducting interest totaled $750,000 or less through 2019 — $375,000 or less for married taxpayers filing individually.

If your mortgage debt is greater than the above limits, don’t worry — you may still be able to deduct some of your interest, but the calculation is going to be more complicated.

Here’s what you can deduct

Here’s what you’re allowed to deduct as part of the IRS mortgage interest deduction:

• Late mortgage payment fees: You can deduct late loan payment fees as long as they’re not for specific services rendered in connection with your loan.
• Mortgage prepayment penalty: Some lenders charge a penalty if you repay your loan early. You might be able to claim this fee in a mortgage interest deduction.
• Mortgage interest in connection with a home sale: You can deduct the interest you paid up to and including the day before you close.
• Mortgage insurance premiums: Mortgage insurance premiums are deductible if your insurance contract was issued after 2006. If your adjusted gross income is $100,000 ($50,000 if married filing separately) or more, the deduction you could get is significantly reduced or you might not be able to deduct at all.
• Points: You deduct points you pay at closing for your primary home in the year you pay them. You deduct most points paid on loans for second homes and some eligible refinance loans over the life of the loan.

Here’s what’s not deductible

The following costs aren’t considered interest, so you can’t include them in your mortgage interest deduction:

• Most ground rent: Ground rent, or rent paid specifically on the land the property is on, can only be claimed as mortgage interest under very specific and unusual circumstances.
• Reverse mortgage interest: The IRS considers interest that accrues on a reverse mortgage to be home equity debt, which is not deductible.
• Rent payments for a home you purchase: Rent payments you make when you rent with an option to buy, for example, are not considered interest, so they’re not deductible as interest.
• Charges for services: Charges for closing services the lender provides in the process of financing your home purchase, such as appraisals and notary work, aren’t deductible.
• Loan placement fees: You can’t deduct placement fees the seller pays to arrange your financing.

Learn More: How Much Down Payment Do You Need to Buy a House

How to claim a mortgage interest deduction

Sitting down to fill out your income tax return and claim your deduction can be a daunting task. But preparation is key. As long as you have all the documents you need, it’s just a matter of following the instructions in the tax form booklets or online.

Here are the steps you should take so that you’re prepared to claim:

1. Gather the documentation: Round up your Form 1098 and documentation for mortgage interest you paid that wasn’t reported on Form 1098. Also gather documents for any other itemized deductions you’re taking.
2. Get a Schedule A (Form 1040 or 1040-SR): You can pick up a Schedule A from a local tax office or download it from the IRS website.
3. Fill out the “Interest You Paid” section on Schedule A: This section is where you report all interest you earned. Line 8 pertains specifically to mortgage interest. You’ll transfer amounts from your 1098 form onto Schedule A.
4. Add up your deductions: After you’ve finished entering information for all your itemized deductions and added the amounts from the lines indicated on the form, enter the total of your itemized deductions on Line 17.
5. Fill the deduction amount on Form 1040: You’ll take the amount shown on Line 17 and enter it on Line 9 of your 1040 or 1040-SR.

These are good steps to follow, but please remember to always consult a tax professional on tax matters.

This article is a summary of publicly available material from the Internal Revenue Service. Credible Operations, Inc. is not a tax advisor, and you should not consider the contents of this article to be tax advice, or rely on the contents of this article in making financial decisions. Speak to a tax advisor, or refer to Internal Revenue Service Publication 936 for more information about the Mortgage Interest Tax Deduction.

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