Deductibility of Mortgage Interest in California
Federal Tax Deduction
Mortgage interest paid on a qualified mortgage loan is generally tax-deductible under federal law. To be eligible for the deduction, the loan must meet the following requirements:
* **Secured by a qualified residence:** The loan must be secured by a property that is your primary residence, second home, or vacation home (see below for restrictions on second homes and vacation homes).
* **Used to purchase or substantially improve the property:** The loan proceeds must be used to purchase or make substantial improvements to the property.
* **Loan limit:** The amount of mortgage interest that is deductible is limited based on the loan amount and the type of property. For loans originated after December 15, 2017:
* **Primary residence:** Up to $750,000 of debt ($375,000 for married individuals filing separately)
* **Second home:** Up to $100,000 of debt ($50,000 for married individuals filing separately)
* **Vacation home:** No mortgage interest deduction is allowed
California State Tax Deduction
**California does not allow a deduction for mortgage interest paid on primary or secondary residences.** However, the state does allow a deduction for mortgage interest paid on certain rental properties.
To qualify for the deduction, the rental property must:
* Be in California
* Be rented out for at least 15 days during the year
* Have a gross income of at least $1,000
* Not be used as your primary residence
The deduction is limited to the amount of rental income you receive from the property.
Restrictions on Second Homes and Vacation Homes
The mortgage interest deduction for second homes and vacation homes is subject to additional restrictions under federal law. These restrictions apply to loans originated after December 15, 2017.
**Second homes:**
* You must use the second home as a residence for at least 14 days during the year.
* You can only deduct mortgage interest to the extent that the amount of your qualified residence debt (including debt on the second home) does not exceed $750,000 ($375,000 for married individuals filing separately).
**Vacation homes:**
* You can no longer deduct mortgage interest paid on a vacation home.
Exceptions to the Deduction Limitations
There are some exceptions to the deduction limitations for second homes and vacation homes. These exceptions include:
* Grandfathered loans: Loans originated before December 16, 2017, are not subject to the new deduction limits.
* Loans used to construct a new home: If you use a loan to construct a new home, you may be able to deduct mortgage interest up to the limits that apply to primary residences.
* Loans used to refinance existing debt: If you use a loan to refinance an existing mortgage that was used to purchase or substantially improve a qualified residence, you may be able to deduct mortgage interest up to the limits that apply to primary residences.
How to Claim the Deduction
To claim the mortgage interest deduction on your federal tax return, you will need to itemize your deductions on Schedule A (Form 1040). You will need to provide the following information:
* The amount of mortgage interest you paid during the year
* The name and address of the lender
* The date the loan was originated
* The type of property (primary residence, second home, or vacation home)
To claim the deduction for mortgage interest paid on a rental property in California, you will need to itemize your deductions on Form 540 and attach Schedule A (Form 540). You will need to provide the following information:
* The amount of mortgage interest you paid during the year
* The address of the rental property
* The amount of rental income you received from the property
Additional Information
For more information on the mortgage interest deduction, please refer to the following resources:
* [IRS Publication 936: Home Mortgage Interest Deduction](https://www.irs.gov/publications/p936)
* [California Franchise Tax Board Publication 1031: Homeowners’ Assistance](https://www.ftb.ca.gov/forms/2022/2022-1031.pdf)