How to Write Off Mortgage Interest
If you are not making a standard deduction, you can write off mortgage interest on your home. The deduction is based on how much interest you pay on your mortgage during each tax year. If you have more than one mortgage, you can deduct interest payments on all of those mortgages. This deduction was designed to encourage people to buy homes and, once they do, make mortgage payments on time. While writing off mortgage interest can be a complex process, it is not too difficult. You can do it by taking the following steps.
1. Collect the Paperwork
Every year, your mortgage lender sends you Form 1098. It contains the information about how much interest you paid on your mortgage during the previous year. If you took out more than one mortgage, you will receive more than one form. Some mortgage companies will post your Form 1098 online rather than mailing it to you directly. In that case, you will need to print it out. You should receive all your 1098 forms by January 31.
If your interest payments are less that $500 total, the lender is not obligated to send you Form 1098. You will need to look back at your financial records and add up your interest payments yourself.
2. Calculate Your Deduction
In most cases, you will be able to deduct all of your interest. However, you will need to make sure that you can before you fill out your tax return. As of February 2011, you can deduct all your interest payments for mortgages that fall into one of the following categories:
- Grandfathered debt--This includes any mortgages that you took out before October 13, 1987.
acquisition debt--This includes mortgages that you took out after October 13, 1987 to buy, build or improve your home, so long as they are worth less than $1 million (if you are filing jointly with your spouse) or less than $500,000 (if you are filing on your own).
- Home equity debt--This includes mortgages that you took out after October 13, 1987 for any reason other than to buy, build or improve your home, provided the total value of the mortgage is under $100,000 (if you are filing jointly) or $50,000 (if you are filing as an individual). This category includes home equity line of credit, among other things.
If you took out your mortgage after October 13, 1987 and it was worth more than the above-stated limits, you will need to use Table 1 of IRS Publication 936 to calculate how much interest you deduct. You can either get a copy of Publication 936 from your local library or download it off the IRS's official website.
3. Put the Deduction on Your Tax Return
If all your interest is fully deductible, you will simply need to take the totals from all your 1098 forms and put them on Line 10 of Schedule A. If all of your interest is not fully deductible, you will need to calculate your deductible interest and put the result on Line 10. If some of your mortgages are fully deductible and some aren't, you will need to figure out how much interest you can deduct on a case-by-case basis and add the results together.
If you did not receive Form 1098, you will need to put your total interest payments on Line 11 of Schedule A.Source: m.finweb.com