Question:

How much mortgage interest is tax deductible?

Answer:

Homeowners with more expensive properties should be especially concerned how much mortgage interest is tax deductible on their first or second home loans, and first and second homes. Home loans usually have the interest deductible at large, according to specific rules.

Mortgage interest is fully tax deductible on first mortgage on primary home.

If your first mortgage on your primary home does not exceed $500,000 if you are filing separately; or $1M if you are filing jointly, and doesn't exceed fair market property value - home mortgage interest will be fully tax deductible under both tax codes.

Additional mortgage interest on home equity debt can usually be fully tax deducted for the first $100,000 of a home equity loan (HEL), or line of credit (HELOC), or a second mortgage. Interest on home equity loans of larger amounts will be deductible only if the loan was used for home acquisition, or home improvements, and not for a holiday, or a huge non-home related purpose (buying life insurance, stock and bonds, cars, etc.).

However, mortgage interest on home equity loans will be tax deductible under different rules for:

  • Grandfathered loans;
  • Taxpayers filing the Alternative Minimum Tax (AMT).

It is advised to use professional tax help, or read the IRS Publication 936 to inform yourself about mortgage interest tax specifics.

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