If you’re looking to save some money when you file your income taxes this year, you might consider how your property can benefit you. There are several deductions homeowners can use to their advantage, one of which is the mortgage interest deduction.
Use the links below to navigate throughout the article, or read end to end for a more holistic overview of the mortgage interest deduction:
What Is A Mortgage Interest Deduction?
A mortgage interest deduction is a federal tax deduction that subtracts interest paid on a loan that was used to buy, build, or renovate a residential property from a taxpayer’s taxable income. When your taxable income decreases, so does the amount of money you can be taxed on when you file your annual income taxes.
When filing your taxes, you have the option to claim the standard deduction, which subtracts a predetermined amount from qualifying taxpayer’s taxable income; or you can claim several itemized deductions. Each itemized deduction corresponds to a value which is then subtracted from the taxable income of eligible filers. The mortgage interest deduction is one of the most common itemized deductions claimed by U.S. taxpayers.
What Is The Limit On The Mortgage Interest Deduction?
When determining whether you should take the standard deduction or itemize your deductions, it’s a good idea to consider the value of the itemized deductions that you qualify for. For 2019 filers, the limit you can claim is $750,000 for single or married filing jointly or $375,000 each for married filing separately.
(Prepaid points ÷ Full term of loan in months) x Number of mortgage payments made each year
Am I Eligible For The Mortgage Interest Deduction?
Claiming the mortgage interest deduction can be a great way to save money on your annual tax bill, but in order to qualify, you must meet the IRS’ criteria.
To claim a mortgage interest deduction, the following requirements must be met:
- The property is a house, apartment, co-op, mobile home, trailer, or houseboat
- The home must be used as collateral for the loan
- The property must have residential amenities such as sleeping, cooking, and toilet facilities
Note: You can also claim the mortgage interest deduction on a loan that was used to refinance your home.
Additionally, you must itemize your deductions rather than take the standard deduction if you want to claim it on your annual tax return. Once you’ve calculated all of your itemized deductions, check to see if the value is greater than the standard deduction.
The standard deductions for 2019 are:
- Single: $12,200
- Married filing jointly: $24,400
- Married filing separately: $12,200
- Head of household: $18,350
The standard deductions for the 2020 tax year are:
- Single: $12,400
- Married filing jointly: $24,800
- Married filing separately: $12,400
- Head of household: $18,650
To save the most money on your annual tax return, choose the deduction method with the most value, either itemized or standard.
How To Claim The Mortgage Interest Deduction
If you paid more than $600 in interest during a given tax year, your mortgage lender should issue you Form 1098-Mortgage Interest Statement. This form details the interest and mortgage points you paid on your mortgage throughout the tax year, acting as proof that you’re eligible to claim the mortgage interest deduction on your annual return.
To claim the deduction, you will need to itemize your deductions and report them on Form 1040, Schedule A when you file your taxes. Here, you can also claim any other deduction that you qualify for, such as charitable donations or medical expenses.