Can Mortgage Interest Be Tax Deductible?

Can Mortgage Interest Be Tax Deductible?

Well, tax season is upon us and we get the question a lot this time of year, can mortgage and interest be tax deductible? So I’m going to dive into that today in today’s tip of the week and answer that question if it’s on your mind.

So let’s get into it. First things first, I want to say, that I am not a CPA or tax professionalist so be sure to consult with your tax professional on this to verify all this information. This is to the best of my knowledge, but there’s been a lot of tax code changes over the past couple of years so it’s important to keep these things in mind as you’re considering the tax deductibility of mortgage interest.

The first major change that I wanted to mention is that for homes purchased after December 15th, 2017, the deduction in total combined qualified mortgages was reduced to 750,000 from one million before that. That means that up to $750,000 in cumulative mortgage debt, you can deduct the interest on that portion of your mortgage debt. In other words, you can deduct interest still on a second home AND the primary residence. If you have a mortgage on each property, it’s important to remember that the 750,000 is the combined amount of those loans.

Let’s talk about second homes. You can deduct the interest on a second home, just like you used to be able to. However, I did want to mention you don’t have to prove that you use the property as a second home, but if you rent the property out at all – let’s say you VRBO for some days throughout the year, you have to show that you personally use the property for your personal use for about 14 days in a year or 10% of the total number of days that the property is rented out during that tax year. You have to be able to do that in order to claim that mortgage interest deduction as a second home.

The next thing I want to talk about is home equity loans because there’s a lot of confusion as to whether you can deduct the interest on home equity loans and the short answer is yes. However, the home equity loan has to have been obtained to either buy or build your home or obtained to improve your home for home improvements. If you took out the home equity loan to do something else like pay off other debt, pay off an auto loan, pay off credit cards or whatever other reason, you cannot deduct the interest.

The final and maybe the most important point that I wanted to make, is that the standard deduction increased. Meaning, that if you don’t have more itemization than what the standard deduction is, then you can’t claim the mortgage interest deduction or it wouldn’t make sense to claim the mortgage interest deduction. You have to itemize your deductions on your taxes in order to take advantage of the mortgage interest deduction.

If the mortgage interest doesn’t exceed the standard deduction, it makes more sense to just take the standard deduction because it’d be more of a deduction than the mortgage interest would be.

Hopefully that makes sense, but definitely something to keep in mind as you’re looking at as to whether it makes sense to claim that.

Once again, consult with your tax professional or CPA on this to see how these rules apply to you, but that’s my interpretation of some of the tax guidelines and how it applies to the question of can mortgage interest be tax deductible.

If you have any questions feel free to call at 303-670-0137 or email baxterteam@fairwaymc.com