What is the home mortgage interest deduction?

 

If you itemize deductions on Schedule A, you can deduct qualified mortgage interest on:

  • Your main home
  • A second home

You must be legally responsible for repaying the loan to deduct the mortgage interest.

You can increase your mortgage interest deduction by making extra mortgage payments in the year. Ex: If you pay your January mortgage payment in December, you’ll have one extra month’s interest to deduct. However, you can deduct only what qualifies as home mortgage interest for that year. This might work in your favor when it comes to points.

Qualified Mortgage Interest

You can fully deduct most interest paid on home mortgages. However, there are exceptions. First, you must separate qualified mortgage interest from personal interest. Mortgage interest is usually deductible, but personal interest isn’t.

Home mortgage interest is also called acquisition debt. This is interest on debt that’s:

  • Used to buy, build, or improve your main or second home, like:
  • Secured by that home 

You can fully deduct home mortgage interest you pay on acquisition debt if the debt isn’t more than these at any time in the year:

  • $750,000 if the loan was finalized after Dec. 15, 2017
  • $1 million if the loan was finalized on or before Dec. 15, 2017

These limits are halved if you’re married filing separately.

For years beginning after Dec. 31, 2017, you can no longer deduct the interest you pay on home equity loans or home equity lines of credit if the debt is used for something other than home improvements. This includes things like using it to pay for college tuition or to pay down credit card debt.

Ex: In 2013, Chris bought his main home for $500,000. Four years later, he owed $400,000 on the original mortgage and took out a $60,000 home-equity loan. He used the money to build a sun room and install an indoor pool. His home is now worth $700,000. He then took out another $130,000 home equity loan and bought a sailboat.

On his 2019 return, he can deduct the home mortgage interest he pays on:

  • $400,000 left on the original mortgage (acquisition debt)
  • $60,000 sunroom and pool loan (acquisition debt)

He can’t deduct any interest related to the home equity loan for the sailboat.

Splitting Mortgage Interest

What if you share a mortgage with another person? How do you split the mortgage interest deduction with your spouse? You can each split the mortgage interest you actually paid. If one of you doesn’t itemize deductions, the other can’t deduct the full amount of the mortgage interest unless they actually paid it.

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