One of the great advantages about owning a home is that the interest that you pay on the loan is tax deductible at the end of the year. If you have a mortgage, by the end of this month your lender will send you a Form 1098, which tells you how much interest you paid in 2008. When you do your taxes, that number goes on Line 10 of Schedule A of Form 1040.
While several people are aware of this deduction the majority are unaware that there are a few limitations to this rule. Benny L. Kass of the Washington Post did an article covering a list of them. For instance, you can deduct interest only on up to $100,000 of home equity mortgage indebtedness, on top of your acquisition debt. This applies whether you incur the debt via a home equity line of credit or a cash-out refinancing. Another example had to deal with reverse mortgages. More people are obtaining reverse mortgages, either from commercial lenders or from their families. These loans -- generally available only to people 62 and older who have little or no current mortgage obligations -- provide cash to the homeowner in monthly annuities, a line of credit or a lump sum. Interest accrues until the homeowner sells the house or dies. This interest is not deductible until the loan is paid in full. It should be noted that the home acquisition debt limits discussed above apply to reverse mortgages, and your tax accountant should be consulted to determine exactly how much interest will be tax-deductible.
For more details about these points and others involving mortgage interest, see IRS Publication 936, "Home Mortgage Interest Deduction," available at http://www.irs.gov.
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