Home Mortgage Interest

Interest paid on a mortgage for buying, building, or substantially improving your main or second home is deductible. The mortgage must be secured by the property and properly recorded. To benefit from the Home Mortgage Interest Deduction, you must itemize deductions (Schedule A) on your tax return. The deductible interest is subject to certain limits, as outlined below.

Eligibility Criteria:

1.

The mortgage must be secured by the property.

2.

The mortgage must be recorded.

Mortgage interest is (a) mostly deductible if filing as single and (b) perhaps half deductible if filing jointly. This discussion applies to US tax returns. Many states have slightly different rules. There are two main steps in determining how much of a tax deduction you get.

1.

How much interest is considered deductible, call this D

2.

How much of D is effective in lowering your taxes, call this E.

Interest on land you plan to build a home on isn’t deductible until construction starts. Once construction begins, you can deduct some interest, treating the home under construction as a qualified home for up to 24 months, provided it becomes your qualified residence upon completion.

Mortgage interest on a second home is deductible if it meets the same criteria as your primary residence. However, if you rent out this second home but also use it personally, there are extra rules that could affect the deductibility of mortgage interest and real property taxes.

Read more at IRS Real Estate FAQ and IRS Pub. 936, “Home Mortgage Interest Deduction”.