Mortgage interest is basically the fee that you pay the lender for loaning you money on your home. You can deduct mortgage interest on your personal income tax return if you are eligible to itemize deductions. The itemization total is deducted from your income and serves the purpose of lowering your taxable income. If you have a second home and the home meets the Internal Revenue Service (IRS) standards for a qualifying home then you can deduct the interest paid on it as well.
The steps below are moderately easy to understand and will show you the process to follow how you can deduct mortgage interest when you file your returns. You will need a mortgage statement or Form 1098 from your lender, calculator, tax preparation forms or software for online filing, and pencil and paper for noting calculations. Let’s start with the very first step.
Look through IRS Form Schedule A, Itemized Deductions, and find all the documents that tell you the figures you will need to claim. Some of these are interest associated with your home mortgage, taxes paid to the state and property taxes, and any contributions to qualifying charities. Add those totals and compare with the standard deduction that you are allowed for your filing status. For now the standard deductions are:
-Married and filing jointly: $7,200
-Married and filing separately: $3,600
-Head of household: $6,350
Find your standard deduction and if your itemized total from Schedule A is less, then you cannot deduct mortgage interest on your return.
If you can deduct mortgage interest, then begin filling out Schedule A. Section three is for deductions on your home loan.
You are required to list the name of the institution that you paid the interest to on the form where you list the amount. You can look at Form 1098 that the lender is required to send to you at the end of each tax year and find the amount on the Form that shows interest paid.
If you paid interest to an individual you must list their name and identifying information. They will not send you a Form 1098 so you will have to look at an amortization schedule to determine the amount paid to interest.
If the loan was for your primary residence and you paid points during the tax year for which you are filing, you can deduct those points paid. If you paid points for a loan for a second home, you can only deduct the amount paid over the life of the loan. Again, if you look on Form 1098, you will find the amount paid for points listed.
Finish listing all the qualifying deductions on Schedule A and put the total on IRS Form 1040. If you are unsure whether you can deduct mortgage interest on your personal return speak with your tax preparer or an attorney familiar with tax law.