One of the perks to which many homeowners look forward each year is deducting their mortgage interest on their taxes. Any deduction you can take has the potential to lower the amount you owe in taxes and increase your potential for a refund. To take a tax deduction, you must itemize your deductions. In tax years before 2018, this meant you could only use Form 1040. You couldn’t use shorter forms such as Form 1040-A or Form 1040-EZ.
The Tax Cuts and Jobs Act, passed in December 2017, introduced several changes to tax law. One of the biggest changes is a significantly revised Form 1040. The new Form 1040 replaces the previous Form 1040, the previous Form 1040-A and the previous Form 1040-EZ. Nearly all taxpayers will now use the new Form 1040, supplementing the form with additional schedules as needed. This includes taxpayers who are deducting mortgage interest.
As of the 2018 tax year, there is a new Form 1040. Form 1040-A and Form 1040-EZ have been phased out.
How Deducting Mortgage Interest Works
To deduct mortgage interest, in addition to filing Form 1040, you must also complete Schedule A. There is no special home mortgage interest deduction form; Schedule A includes home mortgage interest as well as several other common tax deductions. For many taxpayers, Form 1040 is typically filed by their tax software, so they may not even be aware of the separate schedule.
Schedule A is relatively simple to complete and includes other deductions such as medical expenses and charitable contributions. By completing Schedule A, you can see if your itemized deductions are higher than your standard deduction. If your standard deduction is higher than your total itemized deductions, you should take the standard deduction instead. A tax adviser can help you decide which route to take when filing your taxes.
Your Form 1098 will tell you how much interest you’ve paid on your mortgage. This form is also called a mortgage interest statement, and it’s sent out by your lender at the beginning of each year. The interest amount that you claim on your Schedule A should match the interest shown on your Form 1098. You don’t need to include your Form 1098 with your tax return because your lender sends it directly to the IRS.
Exceptions to Deducting Mortgage Interest
For tax years 2017 and before, you could deduct the interest you paid on your main home, a second home, on home equity lines of credit and on construction loans. Beginning with the 2018 tax year, you can’t deduct interest paid on the home equity line of credit unless you can prove that the loan was used to improve your home. If you took out a home equity loan for something else, like debt consolidation, you can’t deduct the interest.
The mortgage interest must also be on debt that’s in your name. The only exception is if the mortgage is in your spouse’s name, and you’re filing jointly. If you’re paying your daughter’s mortgage, and it’s in your daughter’s name, you can’t deduct the interest.
For a second home, you must use the home during the year for it to qualify for a mortgage interest deduction. You have to live in it for at least 14 days or for more than 10 percent of the number of days you rent it out. For example, if you rent out the home for 150 days, you must live in it for at least 15 days for it to qualify. If you don’t live in the home long enough, it’s considered a rental property, and it has a separate set of rules that apply to it.
Deducting Mortgage Interest for Tax Year 2018
To deduct mortgage interest for the 2018 tax year (filed in 2019), you will need to fill out the appropriate lines on Schedule A. If your home loan was taken out on or before December 15, 2017, you can deduct home mortgage interest on up to $1 million of mortgage debt. If you’re married filing separately, you can deduct mortgage interest on up to $500,000 of mortgage debt.
If your mortgage was taken out after December 15, 2017, you can deduct home mortgage interest on up to $750,000 of mortgage debt ($375,000 if you’re married filing separately). Once you’ve determined how much interest you can deduct, you’ll enter that amount on line 8a of your schedule. If you paid mortgage interest that was reported on someone else’s Form 1098, enter that amount on line 8b. If you paid more mortgage interest than what is shown on your Form 1098, enter the correct amount on line 8a and attach a statement explaining the discrepancy.
Your settlement statements from your mortgage may show additional points that you pay over the life of your mortgage. You can deduct those points as well and enter those points on line 8c. Once you complete the rest of your Schedule A, you will total them up and enter the total on line 17. You will then transfer the total to line 8 of your Form 1040, which could be considered the 1040 mortgage interest deduction line.
In most cases, you’ll only want to itemize if the total is higher than your standard deduction. The standard deduction for 2018 is $12,000 for individuals, $24,000 for married couples filing jointly, $12,000 for married couples filing separately and $18,000 for those filing as head of household.
Deducting Mortgage Interest for Tax Year 2017
For the 2017 tax year, you can deduct your mortgage insurance premiums as well as your mortgage interest. There is also a limit on how much you can take in itemized deductions based on your income. If your adjusted gross income is more than $313,800, and you’re a married couple filing jointly, you may not be able to file your full deductions. If you’re filing as single, you may not be able to take your full deductions if your adjusted gross income is more than $261,500. If you’re married filing separately, your adjusted gross income must be below $156,900 to take your full deductions. The itemized deductions worksheet in the 2017 instructions for Schedule A will guide you in determining whether or not you can take your full deduction. If you can’t take your full deduction, it will tell you how much of a deduction you can take.
If you meet the income requirements, you can deduct interest on up to $1 million in mortgage debt ($500,000 if you’re married filing separately) along with your other deductions. You can take your mortgage deduction by entering your mortgage interest and points on line 10 of Schedule A. If you paid mortgage interest that was reported on someone else’s Form 1098, enter that amount on line 11 of Schedule A.
You can deduct your mortgage insurance premiums on line 13 of Schedule A. You can only deduct your mortgage insurance premiums if your adjusted gross income is less than $109,000. If your adjusted gross income is more than $100,000, your mortgage insurance premium deduction may be limited. To find out if your mortgage insurance premium deduction is limited, complete the mortgage insurance premium deduction worksheet in the 2017 instructions for Schedule A.
You'll also want to compare your total deductions to the standard deduction for 2017. The standard deduction for a single filer is $6,350. For couples filing jointly, the standard deduction is $12,700. For married couples filing separately, the standard deduction is $6,350. The standard deduction for a head of household is $9,350.
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- IRS: Publication 936 (2017), Home Mortgage Interest Deduction
- IRS: IRS Working on a New Form 1040 for 2019 Tax Season
- IRS: 2018 Instructions for Schedule A (Form 1040) (Draft)
- IRS: 2018 Schedule A (Form 1040)
- IRS: Form 1040 (2018)
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- efile: 2017 Schedule A (Form 1040)
- Forbes: IRS Announces 2017 Tax Rates, Standard Deductions, Exemption Amounts And More
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