Is mortgage interest tax deductible?


The question about whether mortgage interest is tax deductible springs up pretty often. For homeowners' sake the answer is still yes - mortgage interest tax deduction can result in significant savings for the home owner.

Mortgage interest is tax deductible under specific IRS rules.

In most cases mortgage interest can be fully tax-deductible provided the borrower meets certain criteria. The most basic requirements are the following:

  • The home you made payments on qualifies as a first or second home;
  • You have to be legally liable for the mortgage payments you are making;
  • Your mortgage has to be secured with your home being the collateral - Interest tax deductibility does not apply to a personal loan;

Also, there are limitations as to whether you took acquisition or equity debt. Overall mortgage amount eligible for tax deduction is $1.1 million for both. You have to file 1040 Form and itemize deductions under Schedule A.

Interest on refinancing transactions with no cash-out is fully tax deductible. Interest on refinances with cash-out is tax deductible for the first $100K of the cash-out.

Grandfathered mortgage debt is fully interest tax deductible.

Any acquisition and equity debt taken before October 13, 1987 is considered grandfathered and enjoys full home loan interest tax deductibility. Debt limitations apply on mortgage debt taken after that date.

You will need a copy of Form 1098, Mortgage Interest Statement, to show to the Internal Revenue Service (IRS) who you are paying your mortgage loan to if they audit you.

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