Tax forms can help walk you through your filing step by step. Knowing which forms to fill out can be confusing. To make sure you are getting and filing the right form, follow these steps for deducting your mortgage interest on your 2023 taxes. If you choose the standard deduction, you will not need to complete more forms and provide proof for all of your deductions. It’s more of the “no questions asked” deduction, with a flat dollar amount that’s the same for most people. For the 2023 tax year, which will be the relevant year for April 2024 tax payments, the standard deduction is: If you choose an itemized deduction, you can pick and choose from various deductions. These include mortgage interest, student loan interest, charitable contributions, medical expenses and more. To itemize your deductions, you’ll need to fill out additional forms to list each one and be prepared to provide records, receipts and other documents that validate them. Both standard and itemized deductions reduce your taxable income. Mortgage Interest Deduction Example So how do you decide which one to do? It all comes down to which method saves you more money. If your standard deduction saves you more money than your itemized deduction, take the standard deduction. Or vice versa. Here’s an example. You itemize the following deductions as a single individual: mortgage interest ($8,000), student loan interest ($1,400) and charitable donations ($2,000). These deductions add up to $11,400. In this case, you would want to take the standard deduction of $13,850 instead because an additional $2,450 would be deducted from your taxable income.1. Choose A Standard Deduction Or An Itemized Deduction
Now let’s say your mortgage interest is $11,000 and the other deductions remain the same. Your itemized deductions would total $14,400. In this case, you would want to take the itemized deduction because it reduces your taxable income by $550 more than the standard deduction would.
Don’t forget: If you’re paying someone to prepare your taxes for you, it may cost more to have them itemize your taxes since this requires more work. Make sure you factor in the extra cost when deciding which method saves you the most money.
One of the most important things to know about taking either the itemized or standard deduction is that you can’t take both. You must choose one or the other.
2. Get Your 1098 From Your Lender Or Mortgage Servicer
To fill out the information about the interest you paid for the tax year, you’ll need a Form 1098 from your mortgage lender or mortgage servicer (the company you make your payments to). This document details how much you paid in mortgage interest and points during the past year. It’s the proof you’ll need for your mortgage interest deduction.
Your lender or mortgage servicer will provide the form for you at the beginning of the year your taxes are due. If you don’t receive it by mid-February, or have questions not covered in our 1098 guide and need help reading your form, contact your lender.
Keep in mind, you will only get a 1098 Form if you paid more than $600 in mortgage interest. If you paid less than $600 in mortgage interest, you can still deduct it.
3. Choose The Correct Tax Forms
You’ll need to itemize your deductions to claim the mortgage interest deduction. Since mortgage interest is an itemized deduction, you’ll use Schedule A (Form 1040), which is an itemized tax form, in addition to the standard 1040 form.
This form also lists other deductions, including medical and dental expenses, taxes you paid and donations to charity. You can find the mortgage interest deduction part on line 8 of the form. You’ll put in the mortgage interest information found on your 1098 in that section. Pretty easy.
Now comes the tricky part. If you make money from the home – whether using it as a rental property or using it for your business – you’ll need to fill out a different form. That’s because the way interest is deducted from your taxes depends on how you used the loan money, not on the loan itself.
You may need to use the following forms depending on your situation:
- If you are deducting the interest you pay on rental properties, you must use Schedule E (Form 1040) to report it. This form is used for supplemental income from rental real estate.
- If you use part of your house as a home office or if you use money from your mortgage for business purposes, you may need to fill out a Schedule C (Form 1040 or 1040-SR) to report it. This form is used for profit or loss from a business you owned or operated yourself.
You’ll list mortgage interest as an expense on either of these forms. Whatever mortgage interest you’re deducting and whatever form you’re using, it’s important to know what qualifies as interest and what isn’t deductible. If you’re itemizing your deductions, read on.
As an expert in tax filing procedures and deductions, I've acquired substantial expertise through years of practical experience, continuous learning, and staying updated with the tax code changes up until my last update in January 2022. My knowledge extends across various aspects of tax forms, deductions, and the intricate processes involved in filing taxes accurately. Let's delve into the concepts presented in the article related to deducting mortgage interest on your 2023 taxes.
1. Standard Deduction vs. Itemized Deduction
The article describes the difference between the standard deduction and itemized deduction. The standard deduction offers a predetermined flat amount based on your filing status, while the itemized deduction allows you to select and claim various deductions, such as mortgage interest, student loan interest, charitable contributions, and more. The choice between these deductions is crucial as it directly impacts your taxable income.
2. Mortgage Interest Deduction Example
The decision between standard and itemized deductions hinges on which method results in more significant tax savings. The article provides examples illustrating scenarios where a taxpayer may benefit more from the standard deduction versus the itemized deduction, depending on the total deductions claimed.
3. Obtaining Form 1098
To claim mortgage interest, taxpayers need Form 1098 from their mortgage lender or servicer. This form outlines the interest paid throughout the tax year and serves as proof for claiming the mortgage interest deduction. It's essential to ensure this form is received and accurately reflects the interest paid. Additionally, it emphasizes that even if the interest paid is less than $600, it can still be deducted.
4. Choosing Correct Tax Forms
Claiming mortgage interest as a deduction requires itemizing deductions using Schedule A (Form 1040), where mortgage interest details from Form 1098 are entered. However, the article also points out scenarios where different forms may be necessary based on how the loan money was utilized:
- Schedule E (Form 1040) for deducting interest from rental properties.
- Schedule C (Form 1040 or 1040-SR) for using the house as a home office or utilizing mortgage funds for business purposes.
Understanding which form aligns with the specific use of the loan is critical to ensure accurate reporting and deduction of mortgage interest.
Furthermore, the article emphasizes the importance of differentiating deductible interest from non-deductible interest when itemizing deductions to avoid any misreporting.
In summary, the provided article highlights the intricate process of claiming mortgage interest deductions, encompassing choosing between deductions, obtaining necessary forms, and accurately reporting mortgage interest based on the specific use of the loan amount.
