Can a Person Deduct Mortgage Interest for Income Tax?

The capability to use mortgage as an income tax deduction is among the very popular deductions taken by U.S. taxpayers. There is A reduced income tax invoice an extra advantage of homeownership if the house is financed with a mortgage. The number of situations where mortgage interest isn’t tax deductible is limited.

Function

Interest paid on a house mortgage qualifies in most instances as a deductible expense that may be included in a taxpayer’s itemized deductions. A taxpayer should file taxes using the IRS form 1040 to take itemized deductions, which are recorded on Schedule A of the 1040. Mortgage interest is reported on the homeowner and IRS on Form 1098.

Factors

Taxpayers have a choice of itemizing their deductions or taking a standard deduction for income tax purposes. The standard deduction amounts for 2009 were $5,700 for single taxpayers, $11,400 for married joint returns and $8,350 for head of household status. If a taxpayer’s total itemized yields are greater than those figures, it’s better to use the itemized deductions. The interest paid on a mortgage is often the deduction that sets taxpayers over the standard deduction and provides additional tax reduction from the use of itemized deductions.

Limitations

The tax code permits the deduction of interest paid on a house mortgage for loans up to $1 million if the mortgage has been to”buy, build or enhance” the house. Mortgage interest may be deducted on a first and second home. Interest on a house equity loan may be deducted for loan amounts up to $100,000. In the event the principal mortgage is refinanced, the new mortgage will probably be considered that the loan to buy, build or improve up to the amount of the loan balance of the refinanced mortgage. Money taken at a cash-out mortgage over the preceding mortgage balance is known as home equity debt and also subject to the $100,000 limitation for deductible interestrates.

Income Limits

For 2009, the mortgage interest deduction has been phased out for taxpayers with adjusted gross income–AGI–over $166,800. The phase-out of deductions expired from the tax laws after 2009. Mortgage interest on a principal residence and one instant house has been tax allowance for mortgage balances up to the $1 million limitation.

Characteristics

The amount of interest claimed as a deduction will be reduced if a portion of the home is used as a home business or rented out. Interest paid on a loan to get a time share may be applied as an interest deduction for a second home. Mortgage insurance premiums and late payment penalties may also be tax deductible.

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