Interest accrued on loans secured to your primary or secondary residence could be used as a tax deduction. Qualifying loans used to purchase, build, or improve a property could include a mortgage, a second mortgage, a line of credit, or a home equity loan. The maximum loan limit on these types of loans just increased from $750,000 to $1 million ($100,000 for home equity loans), which provides a great opportunity for more clients.
To be considered for these write-offs borrowers must be contractually obligated to the debt and be responsible for payments. For example, if a husband and wife are on the loan together, they are both eligible to deduct the interest. However, if a father is making their daughter’s payments but is not on the loan, the father is unable to write off the mortgage interest.
Another qualifier to look at for this deduction is the category of which a property is deemed. The property must be considered a home. Homes are defined as property that includes sleeping, cooking, and toilet facilities. Examples of a home could be houses, condos, mobile homes, and even boats.
There are unique situations that can be considered regarding deduction qualification. For those that have a second home, interest acquired on second homes with rental income can be deducted if the borrower has occupied it for more than 14 days or 10% of the days rented, whichever is greater. Or, if one has multiple properties, it can identify different homes as their second home each year with the same requirements mentioned above. In regards to early occupancy, if a borrower occupies a property prior to closing on the home, the payments made prior to the mortgage being secured in their name is considered rent and does not qualify for mortgage interest write off. When refinancing, the interest incurred on the refinanced loan can be deducted. Additionally, the points paid to obtain the refinance loan can be eligible for deduction when spread out through the life of them.
To take advantage of these deductions, one would just need to provide records of the Mortgage Interest Statement (Form 1098), closing statement and tax return from last year (for refinances), and/or information of the person you pay mortgage interest to (if not the lender).
Give our team a call today to discuss your situation and qualification for your mortgage interest deduction.