The mortgage interest deduction has been one of the best tax breaks available to all homeowners who pay taxes in the United States. The deduction is available for interest expense for:
- A mortgage to buy your home,
- A second mortgage,
- A line of credit secured by your home, and
- Home-equity loans
You can claim a deduction for any structure with sleeping, cooking and toilet facilities that is used as a first or second home. This is true whether this is on a house, condominium, cooperative, mobile home or even an RV or boat. The loan must be secured by the main home or second home to qualify for the deduction.
The deduction is limited to the lesser of the fair market value of your home or $1,000,000 ($500,000 if you’re single or married filing separately). Home equity lines are limited to $100,000 (or $50,000 if married filing separately). When you refinance your home, the mortgage interest you pay is generally treated just as your original mortgage. Of course, once the original mortgage is paid off, you will not be able to deduct the interest on that mortgage any longer.
Keep good records
The documentary support for your mortgage interest deduction consists of Form 1098, Mortgage Interest Statement showing the interest and deductible points on each mortgage you have with a reporting financial institution, the closing statement for a mortgage established in the current year, and the name, social security number and address of the person who sold you your home if it is a seller financed mortgage.
In rare situations, you might actually pay more interest than is reflected in your Form 1098. When that happens, you are required to attach a statement to your return explaining why your deducting more than your lender reported.
The mortgage interest deduction has been a staple deduction for American taxpayers for many, many years. It is unlikely to disappear no matter what other tax changes are imposed. Yet, given the current mortgage crisis, the Wall Street bailout and credit scare, it is very likely that changes significant changes in how the deduction is taken will occur in the next year or two. What these changes will be is hard to know at this point, but the mortgage interest deduction is likely to become one of the major political footballs of the next Congress.
Remember, when you use TurboTax to file your taxes, we’ll ask you simple questions about your situation and recommend the filing status, credits and deductions that will get you the biggest refund.