Homeownership can encompass some financial concerns for many people.
The interest paid annually on a home mortgage may qualify as a tax deduction and reduce your tax
liability at year-end. The largest tax deduction for homeowners is often their interest payments
on a mortgage.
Mortgage interest for a primary residence will qualify if:
-The property can be a house, co-op, apartment, condo, mobile home, house trailer, or houseboat.
-The home must be collateral for the loan.
-The home must have a bedroom, kitchen, and bathroom.
-A mortgage acquired to buy out your ex’s half of the house in a divorce.
Mortgage interest for a second home will qualify if:
-The second home does not have to be used during the year.
-The house must be collateral for the loan.
-If the second home is rented, you must be there for longer of at least 14 days or more than 10% of
the number of days you rented it out.
The mortgage interest is an itemized deduction; therefore, the total amount of your itemized
deductions must exceed the standard deduction for it to benefit you.
The Standard Deduction for 2023 is:
Single; Married Filing Separately $13,850.00
Married Filing Jointly & Surviving Spouses $27,700.00
Head of Household $20,800.00
Keep in mind, interest is not the only part of your mortgage payment that may be included in your
deduction. Late payment fees, mortgage insurance premiums, and discount points may also be used as
part of your deduction total.
The interest paid on a home equity loan and a mortgage refinance loan may also be deducted but only if
the money is used for building, buying, or making significant improvements to your home that will
increase the home’s value, extend its useful life, or adapt the home to new uses. These adaptations can
include home Improvements for medical purposes, energy efficiency improvements, repairs to a home
office, and repairs and improvements for your rental home. Be sure your home improvements qualify
for the tax deduction if you plan on using it for your year-end tax filings. The home equity loan must be
for your primary home or your second home or rental property.
There are limits on how much can be deducted depending on the amount borrowed and when the
mortgage was initiated. You can only deduct interest payments on principal loans of up to $750,000.00
if married but filing jointly and $375,000.00 if your filing status is single if your home was purchased
after December 15, 2017. If your home was purchased before 12-15-2017 the cap is increased to
$1,000,000.00 if married and filing jointly and $500,000.00 for single filing status.
Each taxpayer and their situation is unique. The home mortgage interest deduction can be beneficial for
many home buyers. It can make borrowing money to buy a home less of a financial burden. Review
your situation and see if this deduction is favorable for you.