Mortgage Interest Tax Deduction
The interest that you pay on your home mortgage loans is a very important factor in your financial tax strategy. The good thing about mortgage loan is that mortgage interest may be tax deductible. This is one of the popular tax deductions that you, the taxpayers, look forward to. However, you must adhere to some rules so as to get the benefit of mortgage interest tax deduction. As the mortgage holder, you must fulfill requirements of filling out form 1040 with a schedule A. Schedule A allows you to itemize or in other words deduct your mortgage interest. The person, who is filing for the tax deduction, must be the owner of the property. No you don’t need to be an owner of the mortgage; you need to be an owner of the property. (It is not required in every case for you to have a true debtor-creditor relationship with your lender to take the mortgage interest deduction. Title 26 Code of Federal Regulations section 1.163-1(b) provides, quote “interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.”) The mortgage interest paid paid on your primary or secondary homes is reported by the lender on form 1098.
There are several types of interest on mortgages which may be tax deductible. It include: the interest amount that you paid on loans to purchase a home, home equity lines of credit, and construction loans. However, there is a limit to the amount of deduction on some loans i.e. Home Equity Line of Credit. Interest that you pay on your third and fourth homes is not tax deductible.
Mortgage interest payment is very popular tool to receive a significant tax benefit. There are mainly two types of mortgage interest payments which are used for tax deduction, acquisition debt and equity mortgage. In the acquisition debt, the mortgage interest is paid to purchase a new home, build a new home or to remodel a home. Interests on these types of mortgages qualify for tax deductions. Equity mortgages are the mortgages where you use your equity in your home so as to obtain the equity mortgage loan. Per current tax regulations you can deduct the first 1.1 million in qualified home mortgage indebtedness and/or 100K in home equity line of credit.
You need to however fulfill certain requirements and conditions in order to deduct your mortgage interest. These conditions are listed below.
- First of all, you are required to file Form 1040. Then you need to itemize deductions on Schedule A of form 1040.
- The mortgage loan under consideration must be a secured debt on a qualified home i.e. primary or secondary residence.
Gabriel Knight contributed to this article.Posted in:Personal Tax ArticlesThis article was written by TaxBizPro, LLC 2020, all rights reserved ©.
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