MORTGAGE INTEREST DEDUCTIONS 101
Purchasing a home comes with many tangible and intangible benefits. One that is commonly overlooked until the start of the year rolls around is the deductions you get on your taxes. As a homeowner, you’re likely able to deduct most, if not all, of your home mortgage interest resulting in a lower tax bill.
Interest paid on a loan that was used to buy, build, or complete substantial renovations on your primary or secondary home falls into the deductible mortgage interest bucket. The property can be a house, apartment, condominium, mobile home, house trailer, or co-op. The amount of interest you can deduct does cap out at $750,000, although most homeowners do not reach that threshold.
At the end of each tax year, your lender will provide you with a mortgage interest statement, or Form 1098, that states the total amount of interest paid for that year. You are responsible for reporting an accurate total of interest paid when you file. This requires you to itemize your taxes. If you have purchased a home with one or more people, each homeowner can deduct the amount of interest they personally pay.
There are a few other payments that may count as mortgage interest and could be added to your deductible amount. These include mortgage points, late payment charges, prepayment penalties, interest on a home equity loan, and certain mortgage insurance premiums.
By deducting mortgage interest from your taxes, you are reducing your taxable income. As a result, you have less tax liability and reduce the amount of taxes you owe which is more money in your pocket!