Mortgage Interest Tax Deduction

Mortgage interest rates are a huge factor to someone’s financial plans, and homeowners will often seek out the lowest interest rates possible. All homeowners who have a mortgage will pay interest on their home loan. The good news is that almost all mortgage interest payments are tax deductible. A mortgage interest tax deduction is one of the most favorite tax deductions that tax payers look forward to. The reason behind this will deal with the amount of interest a mortgage is associated with. There are a few rules that homeowners must abide by in order to take advantage of a mortgage interest tax deduction.

First off, a mortgage holder must meet the requirement of filling out a form 1040. This form allows the homeowner to itemize their mortgage interest tax deductions. The filer must be the owner of the mortgage loan when filing for a tax deduction on mortgage interest payments. In other words, the name on the loan or the one who is liable for the mortgage loan is the only one that can use the mortgage interest rates on that loan for a tax deduction. If someone else pays on the mortgage, they will not be able to itemize it for a tax deduction.

There are two types of mortgages that allow homeowners to use their mortgage interest payments as a tax deduction. The first type is known as acquisition debt, which means the mortgage is being used to purchase a new home, build a new home or remodel a home. Any mortgage used for these purposes will qualify for a tax deduction on the interest payments made on that mortgage loan. The other type of mortgage that qualifies for a mortgage interest tax deduction is an equity mortgage. Equity is where the homeowner borrows on the equity of the home.

Certain mortgage loans do not qualify for a mortgage interest tax deduction. For example, most mortgages are a type of secured loan, where the home or property is used for collateral. A mortgage that doesn’t use the property or home as collateral is an unsecured mortgage loan, typically a personal loan. Mortgages that are not secured with collateral, such as a home or property that is being financed, will not qualify for a mortgage interest tax deduction. The rules and regulations with a mortgage interest tax deduction continue. There are other stipulations a homeowner must abide by.

The property that is being used for collateral on a mortgage loan must be a residence. In other words, the property must be livable with running water, toilet cooking, etc. Homeowners who have a second home can also take advantage of a mortgage interest tax deduction on their second mortgage. However, only one second home will qualify for a mortgage interest tax deduction. Some rental properties will also qualify for this type of tax deduction as well. Rentals must be used at least 10 percent of the time by the renter. In other words, if the renter never lives in their rental, the home will not qualify for a tax deduction.

The good news about refinancing is the current interest rates in which homeowners are taking advantage of. Currently, interest rates on mortgages are low, plus refinancing a home qualifies for a tax deduction as well. Not only does a homeowner have a chance to refinance their home for a lower rate, they also will experience a mortgage interest tax deduction as well. Now is the time to take advantage of refinancing and filing for tax deductions on the interest payments that most mortgages are associated with. As long as the mortgage holder meets all the qualifications, they will save money on their taxes with this type of deduction.