Did you know that a home loan can reduce your tax payments? Depending on how you use the property, you may be eligible for a federal tax deduction.
Home ownership comes with a lot of expenses, some of them unexpected. Finding out that you may be able to deduct several thousand dollars sounds appealing, right? So why don’t more homeowners take advantage of this deduction?
In this article, we’ll give you an overview of the mortgage interest deduction on your federal taxes.
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Your monthly mortgage payment is divided into several parts, including the principal (i.e. the mortgage amount owing) and the interest you pay to the lender. (Depending on the terms of your mortgage, you might also have private mortgage insurance, homeowners’ insurance, property taxes, and other items included in your monthly payment, but they don’t concern us right now.)
The interest you pay each year can be deductible on your U.S. federal tax return – but only if you meet certain requirements.
|It’s important to note that you can’t deduct the amount paid towards the loan principal– just the amount that goes towards the loan interest. Also be sure to consult your tax advisor regarding your specific circumstance.|
Calculating the deduction for your mortgage interest can be complicated; of course, the primary factor in the amount you claim is the amount of interest you’ve paid over the tax year. Bankrate’s Mortgage Interest Deduction Calculator can give you an idea of the math you’ll need to do.
The type of deduction you claim on your federal income tax determines if you use your mortgage interest deduction. If you use a standard deduction, you can’t deduct your mortgage interest. On the other hand, if you itemize your deductions and your loan meets the requirements, the deduction is yours to claim.
What affects your eligibility? There are many factors; we recommend consulting a tax professional to get customized advice. However, the general rule is that:
Why might you not take this deduction? If your standard deduction is greater than your itemized deductions, you can’t add the mortgage interest deduction to your standard deduction; you’d have to choose one. And in that case, you’d choose the standard deduction.
Mortgages (and taxes!) are complicated and confusing. If you need help figuring out a better home loan solution, contact the Mortgage 1 team today! You can get started by calling 1-866-532-0550 or using our Pro SNAP digital mortgage tool.