Income taxes are a burden for everyone. Dual income couples can be hit especially hard. Taking advantage of every tax deduction you can find is the only legal way to reduce your taxes and keep more of what you earn in your own pocket. For many taxpayers, one of the biggest tax deductions available is the mortgage interest deduction.
The Standard Deduction
One choice every taxpayer makes is whether to take the standard deduction or to itemize deductions on their income taxes. The standard deduction is set each year at a specific dollar amount by the IRS. It represents the minimum deduction any taxpayer receives on his taxes. No specific criteria need be met in order to use the standard deduction. The standard deduction for most taxpayers is $11,400 for those married filing jointly and $5,700 for single filers.
Taxpayers may also choose to itemize their deductions rather than use the standard deduction. To itemize your tax deductions, file Schedule A -- Itemized Deductions along with your Form 1040 income tax return. Itemizing, as the name suggests, requires taxpayers to specifically deduct individual items from their income. Each deduction has its own limits, reporting requirements, and documentation requirements. Although it is more complicated to do than using the standard deduction, itemizing deductions may add up to more than the standard deduction, particularly for taxpayers deducting mortgage interest.
For many taxpayers, their biggest possible tax deduction is the interest paid on a qualifying mortgage. Most taxpayers who itemize can deduct the entire amount of mortgage interest paid, as long as their total mortgage balance is $1 million or less and the loan is secured by the main home or a second home. Qualified loans can be first or second mortgages, home improvement loans, and home equity loans.
How to Deduct Mortgage Interest
Mortgage interest is an itemized tax deduction. To deduct your mortgage interest, you must file a Schedule A along with a Form 1040 tax return. Your lender should provide you with a Form 1098 that details how much interest your paid on your mortgage loan during the tax year. Enter the amount reported in Form 1098 on Line 10 of your Schedule A. If you prepaid your January mortgage in December, or if you paid other interest not reported on Form 1098, enter that additional amount on Line 11 of Schedule A.