Understanding the Mortgage Interest Deduction

The Mortgage Interest Tax Deduction

The mortgage interest deduction allows homeowners to reduce their taxable income by the amount of interest paid on a qualified residence loan. The law regarding the Mortgage Interest Deduction was revised by the Tax Cuts and Jobs Act, which took effect beginning with tax returns filed in 2019.

Can I deduct mortgage interest on my taxes?

According to the IRS, you can deduct the interest on a home loan that is used to purchase, construct, or make substantial improvements to a primary or secondary residence. The loan must also be secured by the home and not exceed the value of the home.   

How much is the tax deduction for mortgage interest?

Beginning in tax year 2018, single filers and those married filing jointly can deduct the interest on up to $750,000 of qualified residence loans. If you’re married filing separately, you can deduct interest on up to $375,000 of qualified debt.  

The amount decreased from $1 million ($500,000 for married filing separately) under the Tax Cuts and Jobs Act. But if you secured your loan before Dec. 15, 2017, the previous limits still apply to your deduction.  

Example: How the Mortgage Interest Deduction works

Let’s say you and your spouse took out a $250,000 loan to purchase a $300,000 house. You used the house to secure the loan. The same year, you take out a $100,000 loan to fix up your summer cabin, valued at $150,000. You used the cabin to secure that loan. 

$250,000 + $100,000 = $350,000 total in loans

The combined total for your loans is less than the $750,000 limit. Because you’re using the funds to purchase and make improvements to your primary and secondary homes, you can deduct the interest you pay for these loans from your taxable income. 

What form do I need to report my mortgage interest?

You’ll use the IRS Form 1098 from your lender (or mortgage servicer) to report the amount of interest you paid during the year.

Can I deduct the interest on my home equity loan?

Whether or not you can deduct the interest on your home equity loan depends on how you use the money.

Like a mortgage, a home equity loan is considered by the IRS to be a qualified residence loan. So if use your home equity loan to make improvements to your residence, the interest could be deductible. But if you use it to cover personal expenses, like credit card debt or student loans, you can’t deduct the interest. 

Can I deduct mortgage interest if I share a property with others?

When multiple people buy a home together, each owner can deduct the amount of interest they pay if they itemize their deductions. Lenders typically send out a mortgage interest statement at the end of the tax year to indicate the total interest paid on the mortgage.

Taxpayers are responsible for reporting the correct amount of interest they paid, regardless of whose name or Social Security number is listed on the mortgage interest statement received. Learn more about shared ownership properties here.

Can I deduct the interest for someone else’s mortgage that I pay?

If you help make mortgage payments for a child or friend while they are unemployed, you cannot claim the mortgage interest deduction for someone else’s debt unless you are a legal owner of the property. 

The article was last updated on 4/23/2022.

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