is mortgage tax deductible? Your mortgage can be tax-deductible, but not as you expect. Most homeowners are likely to get this deduction wrong, as it’s not what most people think it is. So, if you’re wondering whether your mortgage payment is deductible.
Here is what you need to know about what qualifies and what doesn’t regarding mortgage interest tax deductions.
Are homeowners eligible for the Mortgage Interest Tax Deduction?
The Mortgage Interest Tax Deduction (MID) can be a helpful tax break for homeowners, helping them save on taxes each year. But even though it’s been around since 1913, there are still plenty of myths about how you can claim it and how much you can deduct.
So before you dive into that deductible mortgage payment, here’s what you need to know.
First, if you have an adjustable-rate mortgage or a line of credit tied to your home equity, don’t count on getting any MID help from Uncle Sam. These mortgages aren’t eligible for deduction under current law.
And second, if you had an interest-only or negative amortization loan at some point during your ownership, again, no MID deduction is available.
Can you deduct other mortgage-related expenses from your taxes, too?
When a homeowner takes out a mortgage, it’s not just their monthly payment that affects their taxes. Other mortgage expenses such as property taxes and mortgage insurance are deductible on your federal income tax return. (But don’t automatically assume that refinancing your mortgage will save you money on taxes; it might increase them.)
The rules for deducting these expenses vary depending on who owns your home and how you file your taxes. If you’re unsure whether your situation qualifies, consult a tax professional before doing anything else. They’ll be able to explain precisely what deductions are available in your situation and guide you toward saving more money at tax time.
How do you claim the mortgage interest deduction on your taxes?
The mortgage interest deduction is a valuable tax incentive that can help you save money on your taxes, especially if you have a lot of mortgage debt. However, how do you claim it? You may be thinking that claiming it is as simple as taking a page out of your mortgage statement and putting it in with your other deductions. Still, there are a few more steps than that.
While claiming your deduction isn’t complicated, there are also some details to remember when preparing your taxes. For example, you’ll need to ensure you meet specific requirements before claiming it. In addition, there are limits on what kinds of mortgages qualify for the deduction and how much interest you can deduct each year.
Make sure you know everything about claiming your mortgage interest deduction so your return will be accurate and complete. To learn more about whether or not your mortgage qualifies for a tax break, contact an accountant or financial advisor near you today!
Are there any restrictions to claiming the mortgage interest deduction on your taxes?
There are a few limitations:
You must use your home as your primary residence to take advantage of it.
You must be legally responsible for paying off a portion of the mortgage note. Usually at least 10 percent, but most lenders allow up to 20 percent.
And possibly most important: If you have borrowed money from friends or family members that have not been repaid or refinanced that loan into your new mortgage, then interest on those loans is not deductible (or even tax-deductible).
You may still claim deductions for any interest paid on a home equity loan up to $100,000 ($50K if married, filing separately). Still, those loans are considered personal debt by lenders and do not qualify for mortgage interest deduction purposes.
Can you claim the mortgage interest deduction if you’re married but file separately from your spouse?
Technically, it would be best if you were legally obligated before you could write off your mortgage interest. According to IRS Publication 936 (Tax Benefits for Homeowners), there are four main requirements for homeowners to deduct their mortgage interest:
First, you must be legally obligated to take a loan secured by your home.
Second, that loan must be used solely for acquiring, building, or substantially improving your main home.
Third, you must use it as a primary residence and occupy it at least one day during each of the five consecutive years during or after its construction or improvement.
Finally, suppose you’re married but file separately from your spouse. In that case, you may not claim an itemized deduction for interest paid on a qualified home equity loan.
However, suppose you live apart from your spouse for the last six months of the year. In that case, you may still claim an itemized deduction for interest paid on such a qualified home equity loan.
When do you have to be legally obligated to pay off your home loan to qualify for the interest deduction?
You’ll need to be legally obligated on your mortgage to qualify for a home mortgage interest deduction. This means that if you have no intention of paying off your loan in full, you won’t be able to claim an interest deduction. So make sure you save and plan enough money to pay off your loan before it comes due. Or else, choose a more affordable home, or purchase a property with a lower down payment.
These will allow you to either keep your house after a foreclosure or sell it at a gain rather than having it foreclosed upon. Also, remember that if you are still making payments when you die, any unpaid debt may be discharged from your estate.
Therefore, consider adding beneficiaries to your policy so they can receive any remaining balance once you pass away. Your heirs will be unable to deduct any interest paid after your death. If you don’t know who your beneficiaries should be, contact an attorney specializing in estate planning or review IRS Publication 559
Do all states allow taxpayers to deduct their state income taxes from their federal income taxes?
Some states do not allow taxpayers to deduct their state income taxes from their federal income taxes. Other states are split-rate, meaning that only a certain percentage of your state income tax can be deducted from your federal income taxes.
ALSO READ: How Investing in Real Estate Works
Check with your accountant for further details about how you can claim deductions for state income taxes on your federal returns. It is also a good idea to check if there is any special treatment for real estate taxes in your state, as some states offer specific tax incentives for owners of homes or businesses located in distressed areas (areas walloped by recent foreclosures and business closures).
If you qualify, check with an accountant so that you are taking advantage of these very beneficial opportunities while they last!
What common mistakes do taxpayers make during filing season every year related to reporting their taxes correctly?
Taxpayers frequently make mistakes in reporting their taxes every year. The IRS states that taxpayers make at least five common errors, including filing late, not checking for errors or math errors on their tax returns, or not reporting all of their income.
This is why filing your taxes as early as possible is essential. Hence, you have time to go back and check any in formation that could be incorrect before it is sent out. Filing your taxes correctly ensures you receive money back in return and don’t owe any money when filing returns yearly.
When filling out your taxes, it is also essential to ensure that you report all of your income. However, there are times when people can claim deductions for things such as business expenses or charitable donations if they meet specific requirements.
It is also a good idea to talk with a tax professional who can help you fill out and understand what information needs to be reported each year while ensuring you do not miss anything necessary.
Why use an online tax service like H&R Block instead of doing it yourself manually with pen and paper or with software bought over the counter at a store like TurboTax or Quicken?
There are several good reasons, including:
1. You don’t have time: Even if you have the time, you don’t have the expertise and would instead let a professional handle it for you.
2. You’ve already tried doing it yourself, but it was confusing or frustrating.
If any of these ring true, there’s no shame in using an online tax service like H&R Block instead of doing it yourself. Better yet, let your tax preparer review your work for errors and omissions (it is free for most taxpayers). That way, no one can accuse you of cheating on your taxes. It will also save future headaches.
The faster and easier taxes are to file, the more likely people will file accurately in subsequent years!
