How much of your mortgage interest can you write off?
Mortgage interest is a significant expense for many homeowners, and understanding how much of it can be deducted on your taxes is crucial for financial planning. The good news is that you can write off a substantial portion of your mortgage interest, potentially reducing your taxable income and saving you money on taxes. But how much exactly can you write off, and what are the rules you need to follow?
Eligibility for Mortgage Interest Deduction
To be eligible for the mortgage interest deduction, you must meet certain criteria. First, you must have a mortgage on a primary or secondary home that you own. This means that you can deduct interest on a mortgage for your primary residence, a second home, or a home you are renting out. However, there are limits on the amount of interest you can deduct for each type of property.
Primary Residence Limitations
For your primary residence, you can deduct interest on loans up to $750,000 ($375,000 if married filing separately). This limit applies to the total amount of debt on all mortgages on your primary home, including both first and second mortgages. If you bought your home before December 15, 2017, you may be eligible for a higher deduction limit of $1 million.
Secondary Home and Rental Property Limitations
For secondary homes and rental properties, the mortgage interest deduction limit is also $750,000. However, you can deduct interest on loans up to $100,000 for a home you are renting out. It’s important to note that the interest on a home equity loan can also be deductible, but only if the funds are used to buy, build, or substantially improve the home that secures the loan.
Calculating Your Deduction
To calculate your mortgage interest deduction, you’ll need to gather your mortgage statements for the tax year. Add up the total interest you paid on all eligible mortgages during the year. Then, subtract any interest that is not deductible, such as interest on a home equity loan used for purposes other than home improvement.
Reporting Your Deduction
Once you have calculated your deduction, you’ll need to report it on your tax return. If you’re using Form 1040, you’ll enter the deduction on line 10. If you’re using Form 1040-SR, you’ll enter the deduction on line 10a. Remember to keep all supporting documentation, such as your mortgage statements, in case you’re audited.
Conclusion
Understanding how much of your mortgage interest can be written off is essential for maximizing your tax savings. By following the rules and limitations set by the IRS, you can reduce your taxable income and potentially lower your tax bill. Always consult with a tax professional to ensure you’re taking full advantage of this valuable deduction.
