The mortgage interest deduction allowed as a Schedule A tax deduction is probably one of the largest deductions a taxpayer is eligible for. The standard deduction, as a general rule, is less than the deduction for mortgage interest that the government allows. It is to the taxpayers’ benefit to calculate this deduction to lower the amount of taxes owed or to increase the amount of refund due.
It is not very difficult to figure your interest deduction for your mortgage, but there are some things that you will need. Before you start with these six easy steps you need to gather up form 1098 from your mortgage lender, IRS Schedule A, and a calculator.
Step 1: After you receive your copy of the form 1098 from your mortgage lender you are ready to figure your mortgage tax deduction. If you are not familiar with the form 1098, it is a form from your lender that tells you how much interest you paid by making your payments last year, and how many points were paid.
Step 2: Find the section on Schedule A that is for reporting mortgage interest paid. Look back at your form 1098 and transfer the information to the Schedule A. Don’t forget to include the number of points you paid too.
Step 3: If you have paid points or interest for your mortgage and you do not see those included on your form 1098, be sure to add to your total. Then add these amounts in this section as well.
Step 4: Be sure to remember to include the premiums that you pay for insurance. If the information is not reported on your 1098 (it usually isn’t), then a quick call to your mortgage lender will get you this information. You can also find it on your year-end statement that comes from your lending facility.
Step 5: Do NOT include the interest that you may have paid on your rental property mortgage. This is not reported on the Schedule A. That is because it is not considered regular interest since it is being paid by a third party. However, you will need to report in on the IRS form for business expenses.
Step 6: Finally, verify that your standard deduction is less than the total itemized deductions that you can claim on Schedule A. Remember, you cannot claim your mortgage tax deduction if you do not have enough total deductions on the Schedule A.