Understanding the Deductible Percentage- How Much Mortgage Interest Can You Claim on Your Taxes-
What Percentage of Mortgage Interest Is Deductible?
Understanding the tax benefits of owning a home is crucial for many homeowners. One of the most significant deductions available is the mortgage interest deduction. This deduction allows homeowners to reduce their taxable income by the amount of interest they pay on their mortgage. But what percentage of mortgage interest is deductible? Let’s delve into this topic to provide you with a clearer understanding of how this deduction works.
Understanding the Mortgage Interest Deduction
The mortgage interest deduction is a provision in the United States tax code that allows homeowners to deduct the interest they pay on their mortgage from their taxable income. This deduction is available for both primary and secondary homes, as long as the mortgage is used to buy, build, or substantially improve the property.
Eligibility and Limits
To be eligible for the mortgage interest deduction, the mortgage must be secured by the home you are using as your primary or secondary residence. Additionally, the mortgage must be taken out after October 13, 1987, and the total debt on the property must not exceed $750,000 ($375,000 if married filing separately).
Calculating the Deductible Amount
The percentage of mortgage interest that is deductible depends on the type of mortgage and the amount borrowed. Generally, the deductible interest is the interest you pay on the first $750,000 ($375,000 for married filing separately) of the mortgage debt. However, if you took out your mortgage before December 15, 2017, you may be able to deduct interest on up to $1 million ($500,000 for married filing separately).
Points and Closing Costs
In addition to the interest paid on the mortgage, you may also be able to deduct points and certain closing costs. Points are fees paid to the lender to secure a lower interest rate on your mortgage. If you paid points, you can deduct them over the life of the loan. Closing costs, such as appraisal fees, title insurance, and attorney fees, may also be deductible, depending on the circumstances.
Reporting the Deduction
To claim the mortgage interest deduction, you must itemize deductions on Schedule A of your tax return. You will need to provide Form 1098, which your lender will send you at the end of the year, showing the total interest you paid during the tax year.
Conclusion
Understanding what percentage of mortgage interest is deductible can help you maximize your tax savings as a homeowner. By taking advantage of this deduction, you can reduce your taxable income and potentially lower your tax bill. However, it’s important to consult with a tax professional to ensure you are following all the rules and regulations regarding the mortgage interest deduction.