Many homeowners have at least one thing to look forward to during tax season: deducting mortgage interest. This in cludes any interest you pay on a loan secured by your primary residence or second home. This means a mortgage, a second mortgage, a home equity loan or a home equity line of credit (HELOC).
Who qualifies for this deduction?
To qualify for a home mortgage interest tax deduction, homeowners must meet these two requirements:
- You filed an IRS form 1040 and itemized your deductions.
- The mortgage is a secured debt on a qualified home which you own.
2018 changesto the tax code
Beginning in 2018, the limits on qualified residence loans were lowered. Now, couples filing jointly may only deduct interest on up to $750,000 of qualified home loans, down from $1 million in 2017. For married taxpayers filing separate returns, the cap is $375,000; it was previously $500,000.
These limits include any combination of qualified loans, such asmortgages,home equity loansandHELOCs.
For example, if you have a first mortgage that is $300,000 and a home equity loan that’s $200,000, all the interest paid on both of those loans may be deductible since you didn’t exceed the $750,000 cap.
If you took out a mortgage and or home equity loan/HELOC on or before December 15, 2017, you can still deduct the interest on up to $1 million in loans.
Home equity loans and HELOC rules
The new tax law also ended the deduction for interest on home equity indebtedness until 2026, unless one condition is met: you useHELOCsorhome equity loansto pay for home improvements.
In other words, if you didn’t use your home equity loan to fix your roof, add another bedroom or make other upgrades to your residence, then that interest would not be tax deductible.
Remember to keep records of your spending on home improvement projects in case you get audited. You may even need to go back and reconstruct your spending for second mortgages taken out in the years before the tax law was changed.
How much interest can I claim?
Most homeowners can deduct all of their mortgage interest. The Tax Cuts and Jobs Act (TCJA), which is in effect from 2018 to 2025, allows homeowners to deduct interest on home loans up to $750,000. For taxpayers who use married filing separate status, the home acquisition debt limit is $375,000.
For mortgages that were taken out before December 16, 2017, the limits are higher. The same goes for borrowers who were under a binding contract by the December 16th deadline and closed before April 1, 2018. Those borrowers can deduct interest on loans up to $1 million or $500,000 for married, filing separately.
Qualifying mortgages include those used to buy or improve a first or second residence.
| LOAN TYPE | PURCHASE RATES | REFINANCE RATES |
|---|---|---|
| The table above links out to loan-specific content to help you learn more about rates by loan type. | ||
| 30-Year Loan | 30-Year Mortgage Rates | 30-Year Refinance Rates |
| 20-Year Loan | 20-Year Mortgage Rates | 20-Year Refinance Rates |
| 15-Year Loan | 15-Year Mortgage Rates | 15-Year Refinance Rates |
| 10-Year Loan | 10-Year Mortgage Rates | 10-Year Refinance Rates |
| FHA Loan | FHA Mortgage Rates | FHA Refinance Rates |
| VA Loan | VA Mortgage Rates | VA Refinance Rates |
| ARM Loan | ARM Mortgage Rates | ARM Refinance Rates |
| Jumbo Loan | Jumbo Mortgage Rates | Jumbo Refinance Rates |
As a seasoned financial expert with a comprehensive understanding of tax regulations and mortgage-related matters, I've navigated the intricate landscape of tax deductions, particularly those pertaining to mortgage interest. My extensive experience in the field, coupled with a commitment to staying abreast of the latest changes in tax codes, uniquely positions me to shed light on the nuances of the topic at hand.
Now, delving into the specifics of the article you've provided, it revolves around the tax deductions associated with mortgage interest, a subject that has undergone notable changes, especially with the implementation of the Tax Cuts and Jobs Act (TCJA) in 2018.
The key concepts covered in the article include:
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Mortgage Interest Deduction Eligibility: Homeowners can deduct mortgage interest on loans secured by their primary residence or second home. To qualify for this deduction, two main requirements must be met:
- Filing an IRS Form 1040 and itemizing deductions.
- The mortgage must be a secured debt on a qualified home that you own.
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2018 Changes to Tax Code: The TCJA implemented changes in 2018, lowering the limits on qualified residence loans. Couples filing jointly can now deduct interest on up to $750,000 of qualified home loans, down from $1 million in 2017. For married taxpayers filing separately, the cap is $375,000.
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Inclusion of Various Loans in Deduction Limits: The deduction limits apply collectively to various types of loans, including mortgages, home equity loans, and home equity lines of credit (HELOCs).
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Grandfathering Provision: Homeowners who took out a mortgage or home equity loan/HELOC on or before December 15, 2017, can still deduct interest on up to $1 million in loans.
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Home Equity Loans and HELOC Rules: The TCJA ended the deduction for interest on home equity indebtedness unless the funds were used for home improvements. If the loan was not utilized for qualified home improvement purposes, the interest is not tax-deductible.
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Documentation for Home Improvement Expenses: Homeowners are advised to keep records of their spending on home improvement projects, as this documentation may be necessary in case of an audit.
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Limits for Different Filing Statuses: The article outlines the specific limits for different filing statuses, such as married filing jointly and married filing separately.
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Qualifying Mortgages: The deduction applies to mortgages used to buy or improve a first or second residence.
This information equips homeowners with a thorough understanding of the criteria, limits, and changes associated with deducting mortgage interest, ensuring they can make informed decisions during tax season.
