If you own a home, the mortgage interest deduction is a popular tax benefit that could save you money. This deduction lets you reduce your taxable income by the amount of interest paid on your mortgage. Here is what you need to know about how it works in 2024, including eligibility, limits, and how to claim it on your taxes.
What is the mortgage interest deduction?
The mortgage interest deduction is a tax break that allows you to deduct the interest paid on your home loan from your taxable income. It is available for mortgages on your primary home and a second home, as long as certain criteria are met. However, you must itemize your deductions on your tax return to take advantage of it.
How much will you pay each month for a $800,000 mortgage?
How much mortgage interest can you deduct in 2024?
For 2024, the deduction is capped based on the size of your mortgage:
- If your mortgage was taken out after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt (or $375,000 if married filing separately).
- If your mortgage was taken out before December 16, 2017, the limit increases to $1 million (or $500,000 if married filing separately).
These limits apply to the total combined mortgage debt on your primary and secondary homes.
What qualifies for the mortgage interest deduction?
The IRS has specific rules about what types of mortgages and properties qualify for the deduction. Here is what you need to know:
Eligible loans
- Loans used to buy, build, or improve your primary or secondary home.
- Home equity loans or lines of credit, as long as the funds are used for home improvements.
Eligible properties
- Houses, condominiums, cooperative apartments, mobile homes, and even houseboats.
- The property must have sleeping, cooking, and toilet facilities to qualify as a “home.”
Additional qualifying expenses
- Points paid when taking out the mortgage.
- Late payment charges, if they were not for a specific service.
- Prepayment penalties, if applicable.
Who qualifies for the mortgage interest deduction?
To qualify, you must meet the following criteria:
- You must be legally liable for the loan.
- The home must be collateral for the loan.
- You must file Form 1040 and itemize your deductions using Schedule A.
If you are married and file separately, the mortgage limit is halved to $375,000 for loans after December 15, 2017, and $500,000 for older loans.
How to claim the mortgage interest deduction
Claiming the mortgage interest deduction involves a few simple steps:
- Receive Form 1098 from your lender
- Your mortgage lender should send you Form 1098 by January. This form shows the total mortgage interest you paid during the year.
- Itemize your deductions
- You must file Schedule A with your tax return to claim the deduction. If your total itemized deductions are less than the standard deduction, it may not be worth itemizing.
- Keep accurate records
- Maintain records of your mortgage statements, Form 1098, and any receipts for qualifying expenses like points or late payment charges.
- Follow IRS guidelines for special cases
- If you use part of your home for business, share ownership with someone else, or have other unique circumstances, review IRS Publication 936 or consult a tax professional.
How much will you pay each month for a $250,000 mortgage?
Are there any limits or exceptions to know?
Yes, there are a few important limits and exceptions:
- Rental use of a second home: If you rent out your second home, you can only deduct interest for the time you use it personally.
- Home equity loans: Interest is deductible only if the loan was used to improve the home securing the loan.
- Alternative Minimum Tax (AMT): If you are subject to the AMT, your mortgage interest deduction may be reduced.
Why itemizing may not always make sense
For 2024, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly. If your itemized deductions (including mortgage interest) do not exceed the standard deduction, you are better off taking the standard deduction instead.
The mortgage interest deduction can be a valuable tax benefit, but it is essential to understand the rules, limits, and whether itemizing your deductions will truly save you money. Be sure to gather your records and consult with a tax professional if you have any questions.
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How much will you pay each month for a $750,000 mortgage?
