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Mortgage Interest Tax Deduction

The mortgage interest tax deduction is important for anyone who owns a home. If you have a mortgage, you may qualify. Many, though, are not able to maximize it. Learn how to claim it with mortgage interest deduction explained.

Mortgage Interest Deduction | Learn the ABCs


What Is a Mortgage Interest Deduction?

A mortgage interest deduction is a tax applied on the interest. Many people pay a mortgage payment each month. The amount goes toward two baskets.

The first basket is the principal. It is the amount you borrowed from the lender. The other basket is the interest. It is the fee for borrowing the money. It is also how the lenders earn from your mortgage.

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The lender does not split the amount you pay equally. During the beginning of the loan, you usually pay more on interest.

How Does Mortgage Interest Tax Deduction Work?

One of the basic questions when it comes to this tax is, “How does mortgage interest deduction work?”

Most Americans can qualify for deductions. These can be either standard or itemized deductions.

A standard deduction refers to a fixed amount you can subtract from your federal tax. When you itemize, it means you list down all your deductions.

For those with a mortgage, the better option is itemized deduction. The standard deduction is usually lower than the interest paid on the mortgage.

For example, a single person can claim only $6,350 for the tax year 2017. Married couples can do so for $12,700. In other words, you need to itemize to claim a mortgage interest tax deduction.

How Much Is Your Tax Deduction?

How Much Is Your Tax Deduction | Mortgage Interest Tax Deduction | how does mortgage interest deduction work
When it comes to tax deductions, many factors can influence them. You can use a mortgage interest tax deduction calculator to help you. You only need to fill out the information. These can include the loan balance, interest, and filing status.

Keep in mind, though, the mortgage interest deduction calculator gives only an estimate. Always double-check your figures when filing your tax return.

What Type of Interest Will Count?

You can reduce your federal taxes with interest from different types of home debt.

The first one is a mortgage for your first and/or second home. It can be a single-detached property, motorhome, boat, or condominium.

According to the IRS, a home is a property where you live most days within the taxation year. It also has the basic essential facilities. These include a kitchen, bedroom, and toilet.

You may also claim the interest for your home equity loan and home equity line of credit.

You cannot use the interest for mortgages taken on the third and succeeding homes. Moreover, to claim, the property must be under your name. If a couple filing separately decides to itemize the deduction, they must also be co-owners of the property.

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Mortgage Interest Tax Deduction 2017

Every year, the IRS sets specific rules for this deduction. For 2017, individuals can deduct the entire interest paid for properties up to $1 million for the first or the second home. This is the acquisition debt. The amount may be to purchase, improve, or build the home. For those with a home equity loan, it is the interest on debt up to $100,000.

For couples filing separately, these figures are divided evenly. It means the cap for each is $500,000.

Mortgage Interest Tax Deduction 2018

Things will change for the tax year 2018 (you will file the tax return for this in 2019). A new law called the Tax Cuts and Jobs Act modified specific provisions for a mortgage interest tax deduction.

You can still deduct the interest on the mortgage of your first and second home. The act, though, will lower the limit. From $1 million, the cap will now be $750,000 on acquisition debt. Those married filing separately claim interest on $350,000.

The good news is the $1 million still applies to the existing mortgages (grandfathered debt). It does not apply to loans taken out prior to December 15, 2017. This will change in 2025 under the new law.

The bigger impact is on the interest on the home equity debt. Under the old law, you can take out a loan against your home’s equity and use the money for whatever purpose. It can be to pay off existing debt, fund college, or settle medical bills.

With the new act, you cannot claim interest on the home equity if you use the money for non-home-related spending.

What if you are refinancing? Whether you can deduct the interest depends on the amount of the loan. If it is up to the specified limit, it can still be an acquisition debt. It means you can claim the interest as a deduction. If it is more than $750,000, the excess becomes home equity debt. You cannot use it as a deduction unless it is to improve your house.


Having a mortgage interest tax deduction does not mean you should take out another mortgage. Learn more about how it works, especially the principal payments, in this video from Dave Ramsey Show:

A mortgage interest tax deduction is one of the best ways to lower your federal taxes. Even with the new law, the cap is still high. Knowing the rules, though, ensure you can claim it properly and file your forms correctly.

Have you tried claiming a mortgage interest deduction? Share your experience in the comments section below.

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Mortgage Interest Tax Deduction