As a homeowner paying interest on a mortgage you are eligible to deduct the interest you pay each year from your Federal income taxes. In order to get the maximum mortgage interest tax deduction you need to understand the rules.
Mortgage interest that you pay on your primary and secondary home is generally deductible. Mortgage interest is any amount you pay as interest on a loan for your primary or secondary home. Eligible loans include:
The mortgage you used to purchase your primary home.
Any second Mortgage you have on your home.
Your Home equity loans or equity lines of credit.
The most important factor is that the loan has to be secured by your home. If the loan is not secured by your home it is not eligible for the mortgage interest deduction.
For IRS purposes, your home can be a house, condo, coop, boat, mobile home, RV, or anything that has sleeping area, cooking area, and a toilet. The deduction only applies to your primary residence and second home. You can not deduct interest from any properties after you second home. You are eligible to claim the deduction as long as the loan is your legal responsibility, and you make the monthly payments.
There are limits to the amount of interest you can deduct. You cannot deduct more than the value of your home. Additionally, the deduction is limited to one million dollars. Home equity loans are limited to $100,000. For more information on the limits for interest deductions refer to IRS publication 936.
To claim the deduction on your taxes you will need the form 1098 from your mortgage lender. This form outlines the interest as well as any points you paid the previous year. If you recently closed or refinanced your mortgage you will need the closing statement. You may also need the name, address, and SSN of the seller you purchased from.
You can learn more about saving money on your mortgage loan by registering for our Underground Mortgage Refinancing Videos.