Mortgage Tax Savings Calculator

Is your mortgage tax deductible?

When it comes to taxation, homeowners have a particular credit available to them for their mortgage. That means if you have a mortgage loan there’s a chance that you could save some money when you file your taxes. However, there are some rules and limitations concerning how the benefit works. Read about the considerations here, and use the calculator to see how much you might be eligible for.

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What is mortgage interest deduction?
When you have a mortgage , the IRS allows you to deduct your interest charges. Interest charges are part of what you pay on your home loan each month. With this deduction, you could also account for insurance premiums and any points paid to reduce your interest.
Which loans get the interest deduction?
To get the interest deduction, the loan has to be secured against your property. There are various types of loans that will allow you to pledge your home as collateral. The loan could be a mortgage (first or second) , a refinance , a home equity loan , or a line of credit . Any debt that is not leveraged against your property is considered a personal loan and is not eligible for interest tax deductions.
Who is eligible for a mortgage interest deduction?
The mortgage interest tax deduction is available to all homeowners that have an existing mortgage on their primary or secondary home. If you have multiple properties, you can deduct mortgage interest from any two that qualify. A home can be any property or vehicle that has a washroom, sleeping area, and cooking facilities. Thus, a house, condo, motorhome, or boat could all be considered a home.
To get the mortgage tax benefit, you have to fill out tax Form 1040 , Schedule A and itemize your deductions. By itemizing your deductions, you omit the standard deduction, which is a baseline dollar figure dependant on your filing status.
You could still opt for a standard deduction and not itemize if it makes more sense for you. Just remember that if you don’t itemize your deductions, you won’t be able to claim your mortgage interest.
The 2017 standard deductions are valued at $6,350 for singles, $9,350 from heads of household, and $12,700 for spouses filing together in 2018. Consequently, itemizing is beneficial when you have other expenses and your mortgage interest pushes you past the standard deduction.
Are there any limitations?
In most cases, all of your mortgage interest can be deducted from your taxes. There can be some limitations concerning the loan amount, how the funds are used, and when you got the mortgage.
When a loan is used to build, purchase, or improve a home (and second home if applicable), each taxpayer can write off the interest for debt up to $500,000. As a result, spouses that file together are eligible to write off interest for loans totaling $1 million. When you have a secondary home, the deduction limit applies to the combined value of your mortgages. Any debt over the specified amount, even if it is for another property, is not tax deductible.
Home equity debt and lines of credit are subject to different limitations. If your loan is not used for buying, building, or improving a home, you can deduct interest for debt worth $50,000 or less. For spouses, the jointly limit becomes $100,000. If you take out a secured line of credit to pay off any debts , this limitation applies to you. Similarly, if you did an equity take out to free up investment income – you could only deduct up to the stated amount.
If your property gets rented out or if you use the loan for business or investments, there could be some additional considerations. Please see below.
Special considerations
There may be instances where your ability to deduct your interest can fall under special consideration. That is, if you have multiple properties, a home that gets rented out, or if a loan is used for business or investments.
Rental properties . For a rental property to be eligible for interest tax deduction, there is a length of time you must use it. You have to use the home for a minimum of 14 days or at least 10% of the time it is rented out, whichever is greater. For example, let’s say your property is rented out 200 days of the year. Since 10% of 200 is 20, that’s greater than 14. Therefore, you would be required to use the property for 20 days or more to deduct your interest charges.
Multiple properties . If you have more then two properties, you can treat any property as your second home. It’s also possible to classify a different property as your secondary home each tax year. The property just has the meet the requirements that have been already specified.
Business loans . When a secured loan is used for business purposes , the deduction has to be documented on another section of your tax filing. Sole proprietors can enter the interest on Schedule C or Schedule E if used to purchase rental property.
Investments . Any proceeds invested in tax-exempt securities, such as municipal bonds, are not interest deductible. If the funds were used to purchase lump sum life insurance or annuity contracts , you could not deduct your interest either.
How are mortgage points deductible?
Mortgage points can be fully deducted on an original loan for your primary home in most cases. To be eligible your loan term cannot be any longer than 30-years. When your loan amount is less than $250,000, all the points are deductible. Any loan amount that is greater than that is a limited to how many points can be claimed.
If your loan amount is over the specified amount and the term is less than 15 years, you can deduct 4 points. When the loan period is longer than 15 years, and above $250k, you are allowed to claim 6 mortgage points.
You can’t fully deduct points the year you paid for them on a second home. Points you pay when refinancing , even on your main home, can’t be entirely deducted in the same year either. Instead, you can subtract a fraction of the points each time you file your taxes. The amount you can deduct will depend on the loan term.
For example, you bought a second home this summer and got a $200,000 mortgage. The term for the mortgage is 15 years, and you paid $5,400 for points. You only made 6 monthly loan payments in 2017. To find out how much you can deduct in 2017 you have to find out the monthly value of the points.
Divide the amount you paid ($5,400) by the months of the loan (15 years = 180 months). The result is $30. Then, multiply the result by the number of payments made in the year ($30 x 6 payments = $180). Therefore, you could deduct $180 in 2017. In 2018, if you make twelve payments, you can deduct $360 ($30 x 12 = 360).
How can you report deductibles on your taxes?
It is relatively easy to claim your deductions. You can apply your deductions on tax Form 1040 Schedule A. On that form; you can state your deductibles between line 10 and 14. There you will find space for your mortgage interest, points, mortgage premiums, and investment interest – respectively.