how much mortgage interest is deductible

The amount of mortgage interest you can deduct depends on several factors, including the type of loan you have, the amount of the loan, and your income․

In general, you can deduct interest on up to $750,000 of acquisition indebtedness․ This is the debt you use to buy, build, or improve your main home․ You can also deduct interest on up to $100,000 of home equity loans, but only if you use the money to buy, build, or improve your main home․
There are some exceptions to these limits․ For example, if you have a loan that was originated before October 13, 1987, you may be able to deduct interest on up to $1 million of acquisition indebtedness․ And if you have a loan that was originated after October 13, 1987, but before October 1, 1990, you may be able to deduct interest on up to $500,000 of acquisition indebtedness․

Overview of Mortgage Interest Deduction

The mortgage interest deduction is a tax break that allows homeowners to deduct the interest they pay on their mortgage loans from their taxable income․ This can save homeowners a significant amount of money on their taxes, especially in the early years of their loan when the majority of their payments go towards interest․

To qualify for the mortgage interest deduction, you must meet the following requirements⁚

• You must itemize your deductions on your tax return․
• The loan must be secured by your main home․
• The loan must be used to buy, build, or improve your main home․

The amount of mortgage interest you can deduct is limited to the following⁚

• $750,000 for acquisition indebtedness (loans used to buy, build, or improve your main home)
• $100,000 for home equity loans (loans secured by your main home that are used for any purpose)

There are some exceptions to these limits․ For example, if you have a loan that was originated before October 13, 1987, you may be able to deduct interest on up to $1 million of acquisition indebtedness․ And if you have a loan that was originated after October 13, 1987, but before October 1, 1990, you may be able to deduct interest on up to $500,000 of acquisition indebtedness․

The mortgage interest deduction is a valuable tax break that can save homeowners a significant amount of money․ However, it is important to remember that the deduction is only available to homeowners who itemize their deductions․ If you do not itemize your deductions, you will not be able to take advantage of the mortgage interest deduction․

Eligibility Requirements

To be eligible for the mortgage interest deduction, you must meet the following requirements⁚

• You must itemize your deductions on your tax return․
• The loan must be secured by your main home․
• The loan must be used to buy, build, or improve your main home․

Itemizing your deductions

To itemize your deductions, you must complete Schedule A of your tax return․ On Schedule A, you can deduct a variety of expenses, including mortgage interest, property taxes, state and local income taxes, and charitable contributions․ If your total itemized deductions are greater than the standard deduction, then you will benefit from itemizing your deductions․

Main home

The mortgage interest deduction is only available for loans that are secured by your main home․ Your main home is the place where you live most of the time․ You can have more than one home, but only one can be your main home for tax purposes․

Qualifying use of loan proceeds

The mortgage interest deduction is only available for loans that are used to buy, build, or improve your main home․ This includes loans that are used to refinance an existing mortgage․

If you use the proceeds of a loan for other purposes, such as to pay off credit card debt or to invest in a rental property, then the interest on that loan will not be deductible․

Special rules for second homes

If you have a second home, you may be able to deduct the mortgage interest on that home if you meet certain requirements․ For example, you must use the home as a residence for more than half the year․ You must also rent out the home for at least 14 days during the year․

If you meet these requirements, you can deduct the mortgage interest on your second home up to the amount of rental income you receive from the property․

Limits on Deductibility

The amount of mortgage interest you can deduct is limited by the following factors⁚

• The type of loan you have
• The amount of the loan
• Your income

Type of loan

The type of loan you have will determine the maximum amount of mortgage interest you can deduct․ For example, you can deduct interest on up to $750,000 of acquisition indebtedness․ Acquisition indebtedness is the debt you use to buy, build, or improve your main home․

You can also deduct interest on up to $100,000 of home equity loans․ Home equity loans are loans that are secured by your home equity․ You can use the proceeds of a home equity loan for any purpose, but the interest on the loan is only deductible if you use the money to buy, build, or improve your main home․

Amount of the loan

The amount of the loan will also affect the amount of mortgage interest you can deduct․ For example, if you have a loan that is greater than $750,000, you will only be able to deduct interest on the first $750,000 of the loan․

Income

Your income will also affect the amount of mortgage interest you can deduct․ If your income is above a certain level, you may be subject to the phase-out of the mortgage interest deduction․

The phase-out of the mortgage interest deduction begins at the following income levels⁚

• $100,000 for single filers
• $150,000 for married couples filing jointly

If your income is above these levels, your mortgage interest deduction will be gradually reduced․

Example

Let’s say you have a loan of $500,000 to buy your main home․ You also have a home equity loan of $50,000 that you used to improve your home․

You can deduct the interest on both of these loans, up to the following limits⁚

• $750,000 for the acquisition indebtedness
• $100,000 for the home equity loan

Therefore, you can deduct a total of $850,000 of mortgage interest․

a․ Acquisition Indebtedness

Acquisition indebtedness is the debt you use to buy, build, or improve your main home․ The interest on acquisition indebtedness is deductible up to a limit of $750,000․

To qualify as acquisition indebtedness, the debt must meet the following requirements⁚

• The debt must be secured by your main home․
• The debt must be used to buy, build, or improve your main home․
• The debt must not be used to refinance a previous mortgage․

Example

Let’s say you take out a loan of $500,000 to buy your main home․ The interest on this loan is deductible as acquisition indebtedness, up to the limit of $750,000․

However, if you later refinance your loan with a new loan of $600,000, the interest on the new loan will not be deductible as acquisition indebtedness․ This is because the new loan is used to refinance a previous mortgage, and not to buy, build, or improve your main home․

Special rules for second homes

If you have a second home, you can only deduct the interest on acquisition indebtedness up to a limit of $100,000․ This limit applies to all second homes, regardless of when they were acquired․

Special rules for home equity loans

Home equity loans are not considered acquisition indebtedness, even if you use the proceeds to buy, build, or improve your main home․ However, the interest on home equity loans is deductible up to a limit of $100,000, if you use the proceeds to buy, build, or improve your main home․

For more information on the mortgage interest deduction, please see IRS Publication 936, Home Mortgage Interest Deduction․

b․ Home Equity Loans

Home equity loans are not considered acquisition indebtedness, even if you use the proceeds to buy, build, or improve your main home․ However, the interest on home equity loans is deductible up to a limit of $100,000, if you use the proceeds to buy, build, or improve your main home․

To qualify for the home equity loan interest deduction, the loan must meet the following requirements⁚

• The loan must be secured by your main home․
• The loan must be used to buy, build, or improve your main home․
• The loan must not be used to refinance a previous mortgage․

Example

Let’s say you take out a home equity loan of $50,000 to add a new room to your main home․ The interest on this loan is deductible up to the limit of $100,000․

However, if you later use the proceeds from the home equity loan to pay off your mortgage, the interest on the home equity loan will no longer be deductible․ This is because the home equity loan is now being used to refinance a previous mortgage, and not to buy, build, or improve your main home․

Special rules for second homes

You can only deduct the interest on home equity loans secured by your main home․ You cannot deduct the interest on home equity loans secured by second homes․

For more information on the home equity loan interest deduction, please see IRS Publication 936, Home Mortgage Interest Deduction․