Home Mortgage Interest Deduction
The Home Mortgage Interest deduction allows you to deduct the interest paid in a given year on a loan taken to secure your primary residence, where you live or intend to live most of the time, or a second home, where you spend part of your time.
A mortgage to buy a home, a second mortgage on a home, a home equity loan, or a line of credit are all examples of loans that qualify.
The mortgage interest is generally fully deductible against your gross income provided your loan meets the following criteria:
The mortgage was taken on or before October 13, 1987.
The mortgage was taken after October 13, 1987 for the explicit purpose of buying, building, or improving a home, and did not amount to more than $1,000,000 throughout a given year. The threshold amount reduces to $500,000 if you are married but filing separately.
The mortgage was taken after October 13, 1987 for reasons other than to buy, build, or improve a home but totaled no more than $100,000 ($50,000 if filing separately) at any time in a given year.
If one of these criteria is not met, you may qualify for a partial deduction of your loan. Your Priortax professional can help you in determining whether you qualify fully and if not what the partial amount of the deduction will be.
Note that the loan amount secured in the third example listed above cannot be higher than the fair market value of your residence(s), minus any amounts you might owe for a mortgage issued before the date indicated, or taken after October 13, 1987 to buy, build, or improve your home.
If you own two homes and have mortgages on both, remember that the dollar limits mentioned apply to the sum of all mortgages combined.
Finally, note that only the section of your home(s) that you use to live in qualifies for the deduction. If you use part of your home for other purposes, such as a home office, you will need to adjust the declared amount of your debt and reduce your deduction accordingly.