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How much interest and property tax can I deduct, and how many years back can I claim them?

You can only claim the interest and property tax that you actually paid in the year as a deduction on this year's return. You can't claim the interest or taxes that you paid in previous years on this year's return. These deductions are claimed on Schedule A as itemized deductions.

The mortgage interest deduction for home acquisition debt is limited to the interest on $1 million. The limit is $500,000 for married filing separately. Home acquisition debt is a mortgage taken out after Oct. 13, 1987, on a qualified home to:

  • Buy the home
  • Build the home
  • Substantially improve the home

The mortgage interest deduction for home equity debt is limited to the interest on the lesser of:

  • $100,000 ($50,000 if married filing separately)
  • The total of the home's fair market value reduced (but not below zero) by the amount of its home acquisition debt

There's effectively a minimum limit for the use of the standard deduction. The standard deduction allows you to claim a pre-determined amount as a deduction if your itemized deductions aren't larger than the pre-determined amount. So, you might not have claimed interest or taxes in previous years because it was better to claim the standard deduction.

If you decide that the itemized deductions are more beneficial than the standard deduction in previous years, you can amend your returns from the previous three years to claim the deductions.

Also, for 2008 and 2009 only, you were allowed to add the qualifying real estate taxes you paid (up to $500) to your standard deduction without itemizing.

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