Owning a home is costly, between the mortgage payments, taxes, insurance and maintenance. The mortgage interest deduction allows homeowners to reduce their taxable income. To benefit from claiming your mortgage interest, the total amount of your itemized deductions should exceed the standard deduction for your filing status. As of 2012, the standard deduction is $5,950 for a single person, $8,700 for head of household and $11,900 for a married couple filing a joint return. It is not uncommon for unmarried couples to purchase a home together. If another person contributed toward the mortgage payment, you can share the credit as long as you meet the criteria.
Who Can Claim the Deduction
IRS Publication 936 states that you can only deduct mortgage interest if you are "legally liable" for the loan. It is not uncommon to assume that liability is determined by the name or names on the mortgage. However, according to Title 26 Code of Federal Regulations section 1.163-1(b), even a taxpayer not directly liable for a mortgage can deduct interest as long as he paid and has a legal interest in the home. This means that you can deduct interest you actually paid as long as you are on the mortgage or the deed.
Loan Eligibility Guidelines
Deductible loan interest is any interest paid on a loan secured by your home or second home. If you have a second home you rent out, it is considered a rental property and not eligible. You can have more than one second home. Qualifying loans include a mortgage to buy your home, a second mortgage, equity loan or equity line of credit.
The person or people named on a mortgage will receive a Form 1098 from the lender indicating the amount of interest paid for the year. If the person making the payments is not listed on the mortgage, you can choose to share the deduction based on how much each person paid. If you have a roommate paying rent, only you are entitled to claim the interest deduction.
Claiming the Deduction
To claim the deduction, you must itemize your deductions on Schedule A. If you are claiming more than one home, list each home separately. The person not named on the 1098 will need to create and attach a simple statement to the Schedule A indicating the amount of interest paid. Include the name and Social Security number of the person who received the 1098 so the IRS can verify you are both claiming the correct amount.
- Second Home Financing Strategies
- When You Refinance Your House Is the Cash Back Taxed?
- Tax Benefits of Rental Property
- Is Mortgage Interest an Itemized Deduction?
- Does Name on Title of Home Allow Mortgage Interest Deduction?
- Can I Take the Home Mortgage Interest Deduction on More Than One House?
- Can You Claim Mortgage Interest Deduction on a Personal Loan?
- Is the Interest Charged to Your Reverse Mortgage Tax-Deductible?
- Can You Deduct Mortgage Interest If You Don't Itemize Deductions?
- Is Home Mortgage Interest Tax Deductible?