Are you a homeowner who wants to receive a larger tax refund this year? You may benefit from taking advantage of a mortgage interest deduction. Today, we'll learn how this tax benefit works and find out if it can help you save some cash.
What Is a Mortgage Interest Deduction—and How Do You Qualify?
A mortgage interest deduction is a tax benefit that lets homeowners reduce their taxable income amount by the portion of interest they paid on their mortgage during the previous tax year. It is one of the most widely used tax deductions in the United States and is available to anyone.
However, it is essential to note that this deduction has limitations and restrictions.
Mortgage Interest Deduction Qualifications
For example, there is a cap on the amount of interest that you can deduct. Tax laws also require that the mortgage goes toward purchasing, building, or improving a home—loans outside this realm don't qualify for the interest deduction.
Additionally, you must use your loan for a primary or secondary home to qualify for a mortgage interest deduction. The tax benefit is unavailable on mortgage loans used for investment or rental properties.
The mortgage interest deduction applies to mortgages taken out before December 15, 2017 for loans up to one million dollars. However, for any mortgage loans started after this date, the interest deduction is limited to loans of up to $750,000.
Remember, you can claim a mortgage interest deduction if you refinance your home—provided you're still using the loan to finance, build, or improve your home.
What is the Difference Between an Itemized vs. Standard Mortgage Interest Deduction?
When it comes to tax deductions for mortgage interest payments, taxpayers have two choices: the standard deduction or an itemized deduction.
The standard deduction option is a fixed amount taxpayers can deduct from their taxable income without needing to itemize—or list—every deduction. This value depends on your filing status: single, married/joint, married/separate, and head of household. The standard mortgage interest deduction changes yearly, so contact your accountant with questions.
On the other hand, itemized deductions allow taxpayers to deduct specific expenses they paid throughout the year, including mortgage interest payments, property taxes, charitable donations, medical fees, and more.
The main difference between these types of deductions is the amount of paperwork involved and the overall tax benefit. The standard deduction is usually much more straightforward to claim. In contrast, itemized deductions require taxpayers to keep detailed records of their expenses and receipts to prove their eligibility for the benefit.
Many homeowners choose to accept the standard deduction rate as fair. However, itemized deductions can benefit taxpayers with significant expenses exceeding the standard deduction. The best deduction option depends on your financial circumstances. It's always best to consult with an accountant for any tax-related advice.
How Do I Request a Mortgage Interest Deduction on a Tax Form?
All tax filers can receive a standard interest deduction by giving honest information regarding their circumstances when filing.
However, to itemize deductions, you must request this option and fill out the proper forms provided by a tax professional—this will ensure you are claiming the accurate amount of your expenses. Getting the appropriate assistance also helps you maximize your tax benefits. A professional can guide you through the process to keep everything organized and accurate.
Mortgage Interest Deductions—Another Way to Save Money During Tax Season
Weigh your options carefully before taking advantage of this tax benefit. For most, a standard mortgage interest deduction is more than fair. However, some homeowners may prefer to itemize their deductions and ensure they receive an accurate tax return when tax season rolls around.
At the Mortgage Minds Group, we want to help you navigate your mortgage needs. Our loan experts are happy to provide you with helpful, customized loan solutions so you can enjoy being a homeowner and put more money back in your pocket.
Click here to contact our team today if you have any questions about buying a new home, refinancing, or anything else!
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