Buying a home is exciting, especially if it’s your first one. You may be eager to face the challenges and perks of owning and furnishing a home. One of the most appealing perks for most homeowners is deducting the interest on your mortgage. Even if you’re sharing the mortgage with someone else, you can still deduct the interest you pay. There are some considerations to keep in mind, though.
You Must Have Ownership
In order to deduct the interest you’ve paid on your mortgage, you must have ownership in the house. You can be one of the co-borrowers on the mortgage, or you can be on the deed of the house. As long as you are an owner, you can deduct the interest you pay. You can only deduct your share of the interest, though. If you pay half of the mortgage, for example, you can deduct half of the interest.
You Must Itemize
When you’re filing your income taxes, you can either itemize deductions or take a standard deduction. Itemizing means listing your individual expenses in categories such as state and local taxes and charitable contributions. In order to deduct your mortgage interest, you have to itemize your deductions and note the amount you’ve paid in interest on your mortgage. Even if you itemize, though, your deductions may not add up to more than the standard deduction. If they don’t, it makes more sense to take the standard deduction, which for the 2017 tax year is $6,350 if you’re single and $12,700 if you’re married filing jointly.
Limitations on Deductions
There are some limitations on how much you can deduct. If your mortgage was taken out on or before October 13, 1987, you can deduct the full mortgage interest. If you took out your mortgage after October 13, 1987, you can deduct the interest on up to $1 million in mortgage debt and up to $100,000 in home equity loan debt. This applies to a main home and a second home.
There are other unique circumstances that can impact your mortgage deduction. For example, if part of your home is used as a home office, that part of your home is deducted separately under IRS business rules. Another instance is that if your home is under construction, you can deduct it for up to 24 months as long as you plan to make it your main residence. If your home was destroyed in an earthquake, fire or other calamity, you can deduct it as long as you either rebuild the home or sell the land on which the home stood.
- IRS: Publication 936 (2017), Home Mortgage Interest Deduction
- Forbes: How The New Tax Law Will Impact Your Housing Costs
- Investopedia: Calculating the Mortgage Interest Tax Deduction
- Nolo: When Home Mortgage Interest Is Not Tax Deductible
- Nolo: Deducting Mortgage and Other Interest
- IRS: Itemize or Choose the Standard Deduction
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- How do I File Income Tax Form 1098: Mortgage Interest Statement?
- Can I Claim Interest Paid on My Mortgage if My House Is Not in My Name?
- Refinance & Tax Implications