How to increase your 2009 mortgage interest tax deduction

Synopsis: Taxes can be confusing. Toss in tax credits and tax deductions the confusion can rise to a fever pitch.

How To Increase Mortgage Interest Tax Deductions

The greatest threat to home buyers and homeowners may not be hurricanes or fire. The greatest threat may be the pervasive misunderstandings surrounding legal ways to reduce your tax liability by reducing your mortgage taxes through lawful deductions.

The Mortgage Interest Credit and the Home Mortgage Interest Deduction are two separate tax breaks linked to buying a primary residence. One is a deduction, and the other is a credit. The two work in different ways.

Tax credits reduce the amount of tax owed. Credits can be refundable even if you don’t owe taxes in the current year.

The Interest Deduction is typically available to any home buyer, regardless of income, with a secured mortgage and they itemize deductions on Schedule A.

Many home buyers are confused when it comes to increasing their mortgage tax deductions. Here are some more common questions with the latest answers.

Is Mortgage Interest Deductible?

Yes. If it meets any of the following:

The mortgage began on or before October 13, 1987

The mortgage began after October 13, 1987 and used to buy, build or improve your home,

The mortgage was taken out after October 13, 1987 as home equity debt and not used to acquire a home

What Is The Mortgage Interest Deduction Limit?

According to IRS. gov, for those homes bought before 2018, interest up to $1 million for joint filers ($500,000 for married filing separately). Under the 2018 Tax Cuts and Jobs Act (TCJA), a person can deduct interest on up to $750,000 of mortgage debt and up to $375,000 for married couples filing separately. There are some exceptions for grandfathered debts.

$100,000 of the home’s equity debt can be filed, but this provision is limited under the TCJA. Under the new law, home equity loan interest can be deducted if it is used to buy, build or significantly approve a home. If the home equity line of credit is used for personal expense — card debt for example — it is not deductible.

Which Properties Qualify?

A primary or secondary home qualifies. Additional properties are not permitted except under limited circumstances.

Does The Mortgage Interest Deduction Affect Homeowners?

Yes. Most homeowners, other than those with a debt exceeding $750,000 save money because of the deduction. For example, buying a $200,000 home, with 20% down, on a 30-year fixed-rate loan at 5% interest, the buyer will save approximately $2,798 each year in taxes.

The Takeaway

While the information provided is current as of this writing, tax laws can, and do change — frequently. Use this as a guide, but contact us for the latest in tax regulations.