When Can I Deduct Mortgage Interest?
The mortgage interest deduction has long been a favorite tool for many taxpayers and home buyers. If you itemize deductions on your tax return, and have a mortgage on a qualifying home – then the interest is likely deductible. A qualifying home is a main home or a second home.
The new maximum loan limit for the interest deduction is $750,000 (although loans obtained before certain dates are grandfathered in). So any mortgage loans higher than this amount the interest cannot be deducted.
There are other situations when you cannot deduct mortgage interest also. Some of these include reverse mortgages, rental home mortgages, and home equity loans that were not used to buy, build or improve your home.
Do Recent Tax Law Changes Affect Me?
As you may have heard, recent tax law changes went into effect in 2018. These changes did not affect how the mortgage interest deduction works. However, they DO affect the number of taxpayers that can use the deduction. Remember from above that you can deduct mortgage interest IF you itemize your deductions.
With new standard deduction amounts higher than ever before – $12,000 single, $18,000 head of household, and $24,000 married filing jointly; it takes more mortgage debt to realize any taxable benefit. Unless deductible expenses are above these amounts, you cannot deduct the interest. Therefore a mortgage is less likely to reduce tax liability.
Many taxpayers previously itemizing may no longer need to with the new rules. Check your 1098 for how much mortgage interest you paid and see if the mortgage interest deduction may work for you. If not, hopefully you still benefit from the newer, larger standard deduction.
The Mortgage Interest Deduction is Right For Me – Now What?
So you checked your deductions, and you think you can itemize your tax deductions – now what? Generally, if deductions are high enough that you can itemize, hiring an accountant (a licensed CPA is best) to prepare your return is a good idea.
A professional, experienced accountant will advise you and be knowledgeable in all areas of tax law. This will help maximize your tax benefit and lower your tax liability. The accountant will tell you what documents to gather and bring to your appointment.
The most important document in regards to the mortgage interest deduction is the 1098. Your mortgage company will issue the form to you by end of January. Bring all 1098 forms that you receive to your accountant’s office, along with all other documentation for any other deductions. Remember to make your appointment early – as soon as you have received all of your tax forms! Good Luck!!!