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.
Generally speaking, a co-borrower can claim mortgage interest paid assuming they meet the specific requirements established by the IRS regarding the size of mortgage debt in question.
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 2019 tax year is $12,200 if you’re single and $24,400 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. For any mortgages that have been taken out after December 16, 2017, interest can be deducted on up top $750,000 of debt for married couples and up to $500,000 for single individuals.
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 (2018), 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: Top Personal Tax Deductions
- IRS: Itemize or Choose the Standard Deduction
- Are Mortgage Payments Tax Deductible?
- Tax Consequences of Converting a Rental Property Back Into a Dwelling
- Can a Boat Be Considered a Second Home for a Tax Deduction?
- Is There a Limit to How Much of Your Mortgage Interest You Can Claim As a Tax Deduction?
- When Is Mortgage Interest Not Deductible?
- Refinance & Tax Implications
- What Items Qualify as Deductions on Your Tax Return?
- Can I Share My Interest Deduction?