How Does Home Mortgage Tax Deduction Work?
Each year, any lender to whom you have paid home mortgage interest must supply you with a copy of IRS Form 1098, also known as the "Mortgage Interest Statement." This form tells you the total amount in mortgage interest you paid over the past year. If you bought your home in the past year and paid "points" of prepaid interest to get a better mortgage rate, that amount will also be identified. Form 1098 also tells you how much you paid in mortgage insurance premiums. Most lenders require you to pay for this insurance when a mortgage loan exceeds 80 percent of the value of your home. The IRS treats these insurance premiums as tax-deductible mortgage interest.
To claim the mortgage interest deduction, you must itemize your income tax deductions. To do this,
file the IRS 1040 "long form" and fill out Schedule A. You cannot itemize deductions with the short form 1040A or simplified form 1040EZ. Mortgage interest, points and mortgage insurance premiums go in the "Interest You Paid" section of Schedule A.
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