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Home Mortgage Interest Tax Deduction

Mortgage interest reduces your taxable income and lowers your taxes

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Updated April 20, 2014
Home Mortgage Interest is a tax-deductible expense. Mortgage interest is reported on Form 1040, Schedule A along with other itemized deductions such as real estate property taxes, medical expenses, and charitable contributions. Taxpayers paying mortgage interest should fill out Schedule A to see if their itemized deductions exceed their standard deduction. If so, taxpayers will save more money on their taxes by itemizing. Taxpayers who itemize their deductions will need to file the Form 1040 long form.

Documents You Need

  • Form 1098, Mortgage Interest Statement from your mortgage lenders.
  • HUD-1 Settlement Statement from your escrow company if you bought or sold a home.

IRS Forms and Publications You Need

Qualifying for the Mortgage Interest Deduction

Mortgage interest includes interest you paid on loans to buy a home, home equity lines of credit, and construction loans. That amount you can deduct is limited. You can only deduct interest paid on your main home and a second home. Interest paid on third or fourth homes, for example, is not deductible.

You need to meet the all the following requirements in order to deduct your mortgage interest:

  • You must file Form 1040 and itemize deductions on Schedule A (Form 1040).
  • You must be legally liable for the loan. You cannot deduct payments you make for someone else if you are not legally liable to make them. Both you and the lender must intend that the loan be repaid. In addition, there must be a true debtor-creditor relationship between you and the lender.
  • The mortgage must be a secured debt on a qualified home.
--Source: IRS Publication 936

Secured Debt

The mortgage loan must be secured by your home in order for the interest to be tax-deductible. The mortgage must:
  • Make your ownership in a qualified home security for payment of the debt,
  • Provide, in case of default, that your home could satisfy the debt, and
  • Be recorded or otherwise be perfected under any state or local law that applies.
--Source: IRS Publication 936

Qualified Home

The mortgage must be secured by a "qualified home" in order for the interest to be tax-deductible. A qualified home is your main home or your second home. If you own more than two personal residences, you should be working with an experienced tax professional to calculate the optimal amount of mortgage interest to deduct. "A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities," according to IRS Publication 936.

Recordkeeping

You should receive a Form 1098, Mortgage Interest Statement, from each mortgage lenders. This form reports the total interest that you paid during the tax year. You do not need to attach these to your return, since the financial institution sends a copy of Form 1098 directly to the IRS. Make sure that the mortgage interest deduction you claim on Schedule A matches the amounts reported on Forms 1098. The amount you can deduct may be less than the amount you paid, based on limitations of the mortgage interest deduction. Keep Form 1098 and worksheets used to figure your deduction with your copy of your tax return for at least three years from the date your filed your return.

Home Mortgage Interest Deduction References

>> More about the mortgage interest deduction: Limitations on the deduction, jointly held mortgages, construction loans, deducting loan points, and when to seek the help of a tax professional.
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