How Much Mortgage Interest Can I Deduct In 2022

If you own a home, you may be able to deduct the interest on your mortgage. If you pay interest on a condominium, cooperative, mobile home, boat, or recreational vehicle used as a residence, you can also deduct that from your taxes. TABLE OF CONTENTS.

It pays to take mortgage interest deductions

There are some limitations, but you can typically write off the interest you pay on a mortgage for either your primary residence or a second home if you itemize.

What counts as mortgage interest?

Deductible mortgage interest is the interest you pay on a loan that is secured by your primary residence or a secondary residence and was used to buy, construct, or significantly improve the residence. Prior to 2018, there was a $1 million cap on the amount of debt that could be written off. The maximum amount of debt is $750,000 starting in 2018. Mortgages that were in existence as of December 15, 2017, will continue to be taxed in accordance with the previous regulations. The previous total was increased to $1,100,000 by the fact that interest paid on up to $100,000 of home equity debt was also deductible for tax years prior to 2018. Loans with deductible interest typically include:

A mortgage to buy or build your home

A second mortgage

A line of credit

A home equity loan

The loan is regarded as a personal loan if it is not secured by a mortgage on your home, and the interest you pay is typically not deductible. Your primary residence or a second residence must serve as security for your mortgage. The interest on a mortgage for a third home, a fourth home, etc. cannot be deducted.

Is my house a home?

For the purposes of the IRS, a “home” is any building with sleeping, cooking, and bathroom facilities, including a house, condo, cooperative, mobile home, trailer, motor home, boat, or recreational vehicle.

Who gets to take the deduction?

You are legally required to repay the debt if you are the primary borrower, and you do so by making the payments. If you are married and you both sign for the loan, both of you are considered the primary borrower. However, unless you co-signed the loan, you cannot deduct the interest if you pay your child’s mortgage to assist them. However, you can give them gifts so they can pay the bills and subtract the interest.

Is there a limit to the amount I can deduct?

Yes, your deduction is generally capped if the total of all mortgages used to purchase, build, or improve your primary residence (and secondary residence, if applicable) exceeds $1 million ($500,000 if you file separately as a married couple in tax years prior to 2018). Beginning in 2018, this limit is lowered to $750,000. Mortgages that were in existence as of December 15, 2017, will continue to be taxed in accordance with the previous regulations.

Regardless of how you use the loan proceeds, you can generally deduct interest on home equity debt up to $100,000 for tax years before 2018 ($50,000 if you’re married and file separately).

For details, see IRS Publication 936: Home Mortgage Interest Deduction.

What if my situation is special?

Here are a few special situations you may encounter.

If you have a second home that you rent out for part of the year, you must use it for more than 14 days or more than 10 percent of the number of days you rented it out at fair market value (whichever number of days is larger) for the home to be considered a second home for tax purposes. If you use the home you rent out for fewer than the required number of days, your home is considered a rental property, not a second home.

You may treat a different home as your second home each tax year, provided each home meets the qualifications noted above.

If you live in a house before your purchase becomes final, any payments you make for that period of time are considered rent. You cannot deduct those payments as interest, even if the settlement papers label them as interest.

If you used the proceeds of a home loan for business purposes, enter that interest on Schedule C if you are a sole proprietor, and on Schedule E if used to purchase rental property. The interest is attributed to the activity for which the loan proceeds were used.

If you own rental property and borrow against it to buy a home, the interest does not qualify as mortgage interest because the loan is not secured by the home itself. Interest paid on that loan cant be deducted as a rental expense either, because the funds were not used for the rental property. The interest expense is actually considered personal interest that is not deductible.

If you used the proceeds of a home mortgage to purchase or “carry” securities that produce tax-exempt income (municipal bonds) , or to purchase single-premium (lump-sum) life insurance or annuity contracts, you cannot deduct the mortgage interest. (The term “to carry” means you have borrowed the money to substantially replace other funds used to buy the tax-free investments or insurance.).

What kind of loans get the deduction?

You can typically write off all of the interest you paid for the year if all of your mortgages fall into one or more of the following categories.

Mortgages you took out on your main home and/or a second home on or before October 13, 1987 (called “grandfathered” debt, because these are mortgages that existed before the current tax rules for mortgage interest took effect).

Mortgages you took out after October 13, 1987 to buy, build or improve your main home and/or second home (called acquisition debt) that totaled $1 million or less for tax years prior to 2018 ($500,000 if you are married and filing separately from your spouse) or $750,000 or less for tax years beginning with 2018. Mortgages that existed as of December 15, 2017 will continue to receive the same tax treatment as under the old rules.

Home equity debt you took out after October 13, 1987 on your main home and/or second home that totaled $100,000 or less throughout the year ($50,000 if you are married and filing separately) for tax years prior to 2018. Interest on such home equity debt was generally deductible regardless of how you use the loan proceeds, including to pay college tuition, credit card debt, or other personal purposes. This assumes the combined balances of acquisition debt and home equity do not exceed the homes fair market value at the time you take out the home equity debt. Beginning in 2018, the interest on home equity debt is no longer deductible unless it was use to buy, build, or substantially improve your home.

If a mortgage does not meet these criteria, your interest deduction may be limited. To figure out how much interest you can deduct and for more details on the rules summarized above, see IRS Publication 936: Home Mortgage Interest Deduction.

What if I refinanced?

When you refinance a loan that was considered acquisition debt, the new loan is also considered acquisition debt up to the remaining balance of the old loan. Home equity debt may be defined as the amount over the old mortgage balance that was not used to purchase, construct, or significantly improve your home. According to the regulations for home equity debt, interest on a portion of that excess debt up to $100,000 may be deducted for tax years prior to 2018. Additionally, if the entire new loan balance qualifies as acquisition debt, you can deduct the points you paid to obtain the new loan over the course of the loan.

In the case of a 30-year mortgage, deducting points entails being able to write off 1/30th of the points each year, or $33 per $1,000 of points paid. Unless you refinance with the same lender, you get to deduct all the points that haven’t been deducted in the year you pay off the loan because you sell the house or refinance again. Then you add the points paid on the most recent deal to the remaining balance from the prior refinancing and subtract the cost on a prorated basis over the term of the new loan.

What kind of records do I need?

You’ll need to keep the records that prove the interest you paid in case the IRS conducts an investigation. These include:

Copies of Form 1098: Mortgage Interest Statement. Form 1098 is the statement your lender sends you to let you know how much mortgage interest you paid during the year and, if you purchased your home in the current year, any deductible points you paid.

Your closing statement from a refinancing that shows the loan proceeds and the points you paid, if any, to refinance the loan on your property.

The name, Social Security number and address of the person you bought your home from, if you pay your mortgage interest to that person, as well as the amount of interest (including any points) you paid for the year.

Your federal tax return from last year, if you refinanced your mortgage last year or earlier, and if youre deducting the eligible portion of your interest over the life of your mortgage.

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FAQ

Is mortgage interest deductible in 2022?

The ceiling for the mortgage interest deduction was $1 million prior to the Tax Cuts and Jobs Act. However, the cap was reduced to $750,000 in 2022, so this tax year married couples filing jointly and single filers can both deduct interest up to $750,000.

Is the mortgage interest 100% tax deductible?

With this deduction, your gross income will be reduced by up to 100% of the interest you pay on a mortgage, along with any other eligible deductions, before your tax liability is determined.

What is the maximum you can deduct for mortgage interest?

Keep good records if you have a mortgage because the interest you pay on your mortgage may allow you to reduce your tax liability. As previously mentioned, generally speaking, you can write off the first $1 million of your mortgage debt for either your primary residence or a second home as mortgage interest paid during the tax year.

Why can’t I deduct my mortgage interest?

The loan is regarded as a personal loan if it is not secured by a mortgage on your home, and the interest you pay is typically not deductible. Your primary residence or a second residence must serve as security for your mortgage. The interest on a mortgage for a third home, a fourth home, etc. cannot be deducted.