A mortgage interest deduction can help homeowners to reduce their taxable income when filing taxes. To understand how it works, you first need to know that two main types of deductions apply to your annual taxes.
These are standardized flat rate deductions that represent a part of your income that isn’t subject to taxation. Then there is an itemized deduction, under which mortgage interest deduction falls.
This is a deduction directly taken from the interest that you pay on your home loan. Often, homeowners will save money by opting for an itemized deduction over the standardized deductions usually taken.
click here – Payoff Reviews – Payoff Personal Loans Review (2020)
Let’s take a closer look…
Here are the facts for mortgage interest deduction:
- Deductions have to be reported on Form 1098 and Schedule A or Schedule E, depending on the type of deduction.
- The maximum interest deduction you can file for as of April 2018 is $750,000.
- Mortgages issued between 1987 and 2017, and homes sold before April 1, 2018, can deduct mortgage interest up to $1 million ($500,000 for married couples filing separately).
- Mortgages issued before 1987 have no deduction limit.
- Mortgage interest deduction can also be taken from second homes and vacation residences with certain limitations.
- You have to be there for at least 14 days or more than 10% of the number of days you rented it out.
- Itemized deductions can be taken from student loan interest, charitable gifts, and unreimbursed medical expenses.
- Mortgaged properties can include a house, co-op, apartment, condo, mobile home, house trailer, or a houseboat. But the home must be lived in and collateral for the loan.
- Non-taxable housing allowances from the military are still eligible for mortgage interest deductions.
However, homeowners insurance, extra principal payments, title insurance, most settlement costs, deposits, down payments, earnest money forfeited, and interest accrued on a reverse mortgage aren’t eligible for deductions.
Should You Decide on Mortgage Interest Deductions Over Standardized Deductions?
When deciding upon whether you should opt for an itemized deduction like a mortgage interest deduction over a standardized deduction, there are a few things you need to consider:
- Tax bracket
- Standard deduction threshold
- Interest amount
Your tax bracket depends on your income and your marital status. Accordingly, the standard deduction threshold is (for 2021):
- $12,400 for single filing status
- $24,800 for married, filing jointly
- $12,400 for married, filing separately
- $18,650 for heads of households
click here – How to Buy Bitcoins — the Most Popular Method
Now, suppose the interest on your complete list of itemized deductions (including your mortgage interest deduction) is higher than the standardized threshold.
In that case, you will benefit from taking an itemized deduction. To itemize your deductions on your tax form, you’ll need to list each deduction and provide records, receipts, and other documents to validate them.
However, if your total itemized deductions are lower than the standardized deductions, it would be in your benefit not to file for itemized deductions.
Moreover, you don’t need to complete any more forms or prove deductions as you do with an itemized form for a standardized deduction. It’s a universal flat dollar amount that’s the same for everyone.
For more info on this subject, you can consult with Zero Mortgage.
Are You Ready to Benefit From Interest Deductions?
In conclusion, a mortgage interest deduction may not always be the best option for lowering your taxes owned. However, it can be in some circumstances, and this will all depend on the amount of interest you have and your tax bracket.
This means that If your total itemized deductions exceed the standard deduction, you’ll receive a larger tax break. For more information, check out our other blog posts!