Mortgage Interest Tax Deductions

Mortgage Interest paid on first and second mortgages are tax deductible for primary and second homes. The deductions are only allowed for mortgages up to $1,000,000 in acquisition debt and $100,000 in home equity debt (aka. cash out refinances). Note: these limits are halved if you’re married filing separately. “Acquisition Debt” is considered any mortgage debt that is not a home equity loan – meaning a loan that was refinanced is still considered “acquisition debt” so long as no equity was taken out of the home.

Requirements For Deductions

The following three conditions must be meet to deduct mortgage interest:

  1. The taxpayer must occupy the home as their primary resident or second home
  2. The taxpayer must be on the note (i.e. legally obligated to pay the debt)
  3. The taxpayer must actually make the payments.
Examples
  1. Primary / 2nd Home: If a co-signer of a note (like a mom or dad) makes the payments but doesn’t live in the property, they cannot write off the interest paid.
  2. Must Be On Loan: a roommate that pays half the mortgage is not entitled to the deductions since they are not on the original loan.
  3. Must Make The Payments: let’s say you have amazing parents and they pay your mortgage, you are unable to deduct the interest since you’re not making the payments.

Deduction Calculator

In order to realize the tax deductions from mortgage interest paid you’ll have to itemize your tax deductions in the Schedule A when you file your taxes. Moreover, the aggregate of your deductions must exceed the standard deduction for the year.  (For 2015 the standard deduction is $6,300 for someone file as a Single and $12,600 for Married Filing Jointly). This calculator will determine your annual savings in taxes paid.

Note: this calculator does not work on mobile or tablet devices.  

Second Homes

You are allowed to deduct mortgage interest on one primary residence and one second home. If you have a second home that you rent out for part of the year, you must use it for more than 14 days or more than 10% of the number of days you rented it out at fair market value (whichever number of days is larger) to be able to deduct the mortgage interest.

If you use the home you rent out for fewer than these required number of days, your home is considered a rental property and not a second home. You may treat a different home as your second home each tax year, provided each home meets the qualifications noted above.

Construction Loans

Mortgage interest paid on an interim construction loan is tax deductible so long as construction was completed within 24 months and the home was occupied within 90 days after its completion.

Forms and Records

If you paid more than $600 in mortgage interest in a year, a mortgage servicer is required to send you a form called “1098: Mortgage Interest Statement”. Form 1098 is the statement your lender sends you to let you know how much mortgage interest you paid during the year and, if you purchased your home in the current year, any deductible points you paid since Mortgage Points Are Tax Deductible. Your closing statement (called the HUD-1 Settlement Statement or Closing Disclosure) will also show any per diem interest paid as well as any points and mortgage insurance that may have been paid.