Mortgage Interest Tax Deductions
Are you wondering whether to buy a home or not? Well, heres something that might just give you a little extra push: mortgage interest is a tax deduction! The mortgage interest deduction is one of the most well-known deductions available to US taxpayers. Created in its current form as a part of the Tax Reform Act of 1986, this legislation allows for mortgage interest to be deductible while almost all other forms of personal interest are not.
Further, while there are limits to the amount of debt covered, there is no limit to the dollar amount of interest that you claim on your tax deductions. So, no matter if your interest rate on your mortgage goes up or down, you can claim all interest paid that is on an allowable debt.
What does that mean for you? It means that you get savings on your yearly tax return, while you build equity in a property at the same time. You are not at risk of losing your interest deductibility if interest rates go up. And, this benefit is only available to home owners. If you are a renter, you miss out on this.
However, theres always a catch. Many taxpayers dont understand that there are actually several limitations on their ability to deduct mortgage interest. The comprehensive rules are not nearly as simple as you might hope. Why? Based on the Internal Revenue Code (IRC), there are actually two different kinds of "mortgage interest" for tax purposes. Different rules, restrictions and deductibility limitations apply to each type. In addition, as more taxpayers find themselves affected by the alternative minimum tax (AMT), the picture gets even more complicated.
See the home equity indebtedness pages for more clarification. As always, get professional advice on how you can best take advantage of the mortgage interest deduction rules.