Home mortgage interest deduction

Key takeaways

• You can deduct your home mortgage interest from your taxable income.
• If you took your loan out after December 15, 2017, you can deduct the interest on the first $750,000 of your mortgage debt. If you took out your mortgage before December 15, 2017, you can deduct the interest on the first $1 million of your mortgage debt.
• To qualify for the mortgage interest deduction, you must be legally responsible for the loan and have an ownership interest in the home.
• If you’re a co-owner and meet the criteria, you can deduct the portion of the interest that you paid.
• Your mortgage lender will send you Form 1098 if you paid more than $600 in mortgage interest over the year. This form shows the total amount of mortgage interest you paid and generally includes the real estate taxes paid from your escrow account as well.
• To deduct mortgage interest, you must itemize your deductions on your tax return.

Is mortgage interest deductible?

Yes, mortgage interest on your first (and second home) is deductible. If you own a home and pay mortgage interest, you can use this deduction to reduce your taxable income.

To benefit from this deduction, you must itemize your deductions on your tax return instead of taking the standard deduction. This means listing out eligible expenses, like mortgage interest.

The home mortgage interest deduction is just one of the many tax perks that come with homeownership. You can also deduct property taxes and take advantage of tax credits for home improvements, like the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.

How much mortgage interest can I deduct?

The amount of mortgage interest you can deduct depends on the size of your mortgage and when you took out the loan. If you took your loan out after December 15, 2017, you can deduct the interest on the first $750,000 of your mortgage. If you are married and filing separately, this limit is $375,000.

If you took out your mortgage before December 15, 2017, you can deduct the interest on the first $1 million of mortgage debt. If you’re married and filing separately, the limit is $500,000. This rule also applies if you refinanced your mortgage, but only if the new loan amount plus any outstanding original loan amount is equal to or less than the than the original loan amount.

Furthermore, if you have a home equity loan or line of credit, you can deduct the interest if you use it to buy, build, or improve your home. The combined total of your mortgage and home equity loan must fall within the $750,000 or $1 million limits (depending on when you took out the loans).

If your mortgage debt exceeds these limits, you can only deduct the interest on the portion within the limits.

Who qualifies for mortgage interest deduction?

To qualify for the mortgage interest deduction, you must meet certain criteria. For one, you must be legally responsible for the loan. This means your name must be on the mortgage, and you must be making payments on the loan.

Additionally, you must have an ownership interest in the home. Simply contributing to mortgage payments without having your name on the deed does not qualify you for the deduction.

Can a co-owner claim a mortgage interest deduction too?

Yes, if you and your co-owner both meet the criteria, you can each deduct the portion of the interest you paid. For example, if you and your co-owner own an equal share in the property, you can each deduct half of the total interest paid.

If more than two people co-own a property, or if the ownership and payment responsibilities are divided unevenly, you should carefully document each person’s contributions and ownership percentages. This helps ensure that everyone claims the correct amount.

It’s crucial for co-owners to communicate and agree on how you will split the mortgage interest deduction. Clear records and agreements can help you avoid discrepancies and ensure that everyone claims their fair share.

Receive Form 1098 from your lender showing how much you paid in mortgage interest?

Before you can deduct your mortgage interest from your taxable income, you’ll need Form 1098, Mortgage Interest Statement. Your mortgage lender will send you Form 1098 if you paid more than $600 in mortgage interest.

What's Included on Form 1098?

• The amount of mortgage interest you paid.
• The outstanding mortgage principal.
• The mortgage origination date.
• Any points you paid on the purchase of your home.
• The address of the property.
• The amount of real estate taxes paid if you use an escrow the mortgage company to pay them.

Make sure that you keep this form and other relevant documents, such as your closing statement and records of points paid, for your records.

How to deduct home mortgage interest

To deduct mortgage interest, you must itemize your deductions on your tax return. Use the information from Form 1098 to fill out Schedule A on Form 1040. Enter the total mortgage interest you paid in the section for home mortgage interest. If you have multiple mortgages, add the interest amounts together and enter the total.

If you paid points to lower your mortgage interest rate, you might be able to deduct these as well. Typically, you can deduct points in the year you paid them if they meet certain conditions. If not, you may need to spread the deduction over the life of the loan. Enter the deductible points on Schedule A.

Have a home equity loan or line of credit?

If you use it to buy, build, or improve your home, you can deduct the interest using Schedule A. Your deduction is limited to the original loan amount and to only the amount used on the home. If you got a new roof and new windows and a new car, you can only deduct the allowed interest paid on the roof and windows. Just make sure that you have documentation proving the loan’s use for these qualifying purposes.

Once you’ve completed Schedule A and entered your total itemized deductions on Form 1040, submit your tax return by the filing deadline. Make sure to keep copies of your tax return and all supporting documents in case of an audit.

Is mortgage interest deductible if you don't itemize?

No, you cannot deduct mortgage interest if you don't itemize your deductions. To benefit from the mortgage interest deduction, you must itemize your deductions on your tax return instead of taking the standard deduction. This means listing out all your eligible expenses and filing Schedule A with your Form 1040. For many homeowners, itemizing provides greater tax savings.

Taking advantage of the home mortgage interest tax deduction can help you reduce your taxable income, lowering your overall tax bill and saving you money. The best part? It’s just one of the many tax perks available to homeowners.

It’s your money. Don’t file alone. Work with a Tax Pro to make the most of the mortgage interest deduction and get every credit and dollar you deserve.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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