The mortgage interest deduction is a valuable tax break for homeowners, allowing them to deduct the interest they pay on their mortgage from their taxable income, thus lowering their tax bill However, there are specific requirements and limitations to be aware of, especially considering the changes brought about by the Tax Cuts and Jobs Act (TCJA) of 2017
Here’s a breakdown of the key points to know about the mortgage interest deduction in 2023:
Deductible Interest:
- Main Home: Interest paid on a mortgage for your primary residence is generally deductible, provided the loan meets certain criteria.
- Second Home: Interest paid on a mortgage for a second home is also deductible, but there are limitations. You must live in the home for more than 14 days or more than 10% of the days you rent it out, whichever is longer. You can only deduct interest for one second home.
- HELOC: Interest on a home equity line of credit (HELOC) is only deductible if you use the funds to “buy, build, or substantially improve” your home.
- Mortgage Points: Prepaid mortgage points can be deducted in the year you pay them or spread out over the life of the loan.
Loan Limits:
- Pre-2018: Prior to 2018, the maximum amount of debt eligible for the mortgage interest deduction was $1 million.
- Post-2017: The TCJA lowered the limit to $750,000 for loans taken out after December 15, 2017.
Other Important Considerations:
- Interest on refinanced mortgages: Interest on refinanced mortgages is generally deductible, as long as the loan meets the same criteria as a new mortgage.
- Interest on home equity loans: Interest on home equity loans is only deductible if you use the funds for “buy, build, or substantially improve” your home.
- Interest on reverse mortgages: Interest on reverse mortgages is not deductible.
How to Claim the Deduction:
- To claim the mortgage interest deduction, you’ll need to itemize your deductions on your tax return using Schedule A (Form 1040).
- You’ll need to provide information about your mortgage, including the lender’s name, address, and the amount of interest you paid.
- You can find this information on Form 1098, which your lender will send you at the beginning of the year.
Additional Resources:
- IRS Publication 936: https://www.irs.gov/publications/p936
- Rocket Mortgage: https://www.rocketmortgage.com/learn/mortgage-interest-deduction
Remember, the mortgage interest deduction can significantly reduce your tax bill. If you’re unsure whether you qualify or how to claim the deduction, consult a tax professional.
What Is The Mortgage Interest Deduction?
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