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You may be able to get a mortgage tax deduction when you file your federal income tax return if you follow IRS rules. This includes detailed discounts and use of the loan to buy, build or improve your home. Home equity credit line (HELOC) interest may also be tax deductible under the same rules.
Find out if you qualify for these tax savings and learn how to claim the deduction if you do:
Are there any tax deductions on my home loan?
Yes, interest on home equity loans is tax deductible, but only if you use the loan to buy, build or actually improve a suitable home. Under IRS rules for repaying any type of mortgage interest, an “approved home” can be your main home (main residence) or your second home (perhaps a cottage, but only if you do not rent one).
Here are some examples of when you may be able to claim a tax deduction on your home equity loan:
- Buy: You buy a house and you throw less than 20% down. Instead of paying for a private mortgage insurance (PMI), you take out a home equity line of credit as a piggy bank loan.
- Build: You get a mortgage to build an auxiliary housing unit (ie, an additional indoor living space with plumbing and electricity) in your backyard.
- Significantly improve: Use a mortgage or HELOC to renovate your kitchen.
Great: If you use your equity debt for another purpose – such as paying off a high-interest credit card debt, paying off student loans, or any other personal expenses unrelated to your home – interest is not tax deductible.
I see: Equity Credit Line (HELOC): What’s more
Rules for deducting mortgage interest tax
The rules for deducting mortgage interest on your tax return are the same whether the loan is a first mortgage, a second mortgage (home equity loan or credit line), a home improvement loan or a refinancing loan.
Generally, you can claim tax deduction for the interest you pay on up to $ 750,000 of your home mortgage debt with any filing status other than filing a separate marriage declaration. In this case, you can only deduct interest up to $ 375,000 home mortgage debt.
These limits came into force for loans taken out on or after December 16, 2017 as part of the Federal Tax and Job Cut Act (TCJA). They will expire on the last day of 2025, unless Congress decides to extend or change them.
Checkout: Mortgage refinancing tax deductions that every homeowner should be aware of
What if I received a equity loan before the tax and job cuts came into force?
If you took out a home equity loan before the start of the TCJA, you will have a higher limit of $ 1 million (this limit is reduced to $ 500,000 if you are married and apply separately).
These old limits also apply to any mortgage debt refinanced after the TCJA, assuming you had the original debt before the TCJA started. For example, if you received a equity loan in 2015 and refinanced it today, you will still be eligible for the premium before the TCJA. You just can not claim the upper limit for any additional debt (such as the redemption part of a redemption refinancing).
Find out the difference: Home equity loan against home equity credit line (HELOC)
How to claim a mortgage tax deduction
You will need to follow these steps to claim a mortgage interest deduction on your federal income tax return.
- Collect mortgage statements at the end of the year. Every home equity lender should give you a mortgage interest statement (IRS Form 1098) in January to show you – and tell the IRS – how much interest you paid them in the previous tax year. This form will also show the start date of your loan so you know which discount limit applies. You may not receive this form if you paid less than $ 600 in interest.
- Calculate your total detailed reductions. You can only deduct mortgage interest if you list the bookings in detail on your federal repayment. You can not claim it if you receive the standard discount. Along with mortgage interest rates, many people are analyzing real estate taxes, personal property taxes, state and local income or sales taxes, and charitable donations. These costs, combined with the interest on your mortgage, may make your total detailed bookings high enough to be worth claiming.
- Do not forget the points. If you paid points to reduce the interest rate, these are considered prepaid interest. They will be listed on Form 1098 and you may be able to remove them.
- Decide which discount you will claim. You will not catch your taxes unless your detailed bookings are higher than the standard discount. It is important to note that the standard discount amount changes frequently from year to year. See the table below for the standard discount on deposit statement for the tax years 2021 and 2022.
|Archiving status||tax year 2021||tax year 2022|
|Single||$ 12,550||$ 12,950|
|Married filing together||$ 25,100||$ 25,900|
|Wedding filing separately||$ 12,550||$ 12,950|
|Head of household||$ 18,800||$ 19,400|
Unfortunately for many taxpayers, the tax law makes it easier for individual applicants to benefit from setting their mortgage interest rate, as their standard deduction is half that of married couples.
Submitting a separate statement if you are married can help you determine your mortgage interest in detail, but it could also penalize you in many other ways – for example, by preventing you from contributing to a Roth IRA. Most taxpayers will not benefit from this tactic, so it is best to talk to a tax professional in advance if it is a move you are considering.
Dont miss: The Tax Benefits of Owning a Home: Discounts and Credits You Need to Know
What you will need to claim a mortgage tax deduction
To claim a mortgage interest deduction, you must specify in detail your reductions in Program A (Form 1040).
You will also need to save documents that substantiate your claim. You will not file them with your tax return, but you will need to keep a record of how much interest you paid and how you used the loan proceeds if you were ever audited. Here’s what to keep:
- 1098 forms from your home lender
- Bank statements showing mortgage payments
- Notice of closing your loan
- Receipts, invoices and contracts for home renovations or construction costs
Although Credible does not offer home equity loans, we can help you find a great interest rate on a redemption refinance. In just a few minutes, you can see personalized, predefined refinancing rates from all of our partner lenders.
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