Home Mortgage Interest Deduction
Candlefocus EditorThe home mortgage interest deduction is a federal tax break that allows homeowners to deduct the interest they pay on a mortgage loan from their taxable income. This deduction can be used on a primary residence or a second home, and is available to homeowners who itemize their deductions on their tax return.
If you qualify for the deduction, you will be responsible for claiming it on your return. The deduction will be listed on Form 1098, which is sent to you by your mortgage lender. That form will indicate how much interest you paid in a given tax year. Depending on your circumstances, the amount of mortgage interest eligible for the deduction will be reported on Schedule A or Schedule E.
For tax year 2017, the Tax Cuts and Jobs Act (TCJA) reduced the maximum mortgage principal eligible for the interest deduction to $750,000 (from $1 million). This change may have a significant impact on homeowners looking to buy a pricier property. However, some may qualify for a legacy clause, whereby they are not subject to the limit.
When filing taxes, many taxpayers forgo claiming the mortgage interest deduction in favor of the larger standard deduction. The current standard deduction for tax year 2020 is $12,400 for single filers and $24,800 for married couples filing jointly. The amount of the mortgage interest deduction you can take will depend on your taxable income and how much you spent on mortgage interest in the tax year.
Overall, the home mortgage interest deduction is a great way for homeowners to save money on taxes. Estimates of how much the deduction is worth varies widely, so it is important for homeowners to review their individual situation to determine if claiming the deduction is worth it.