When is Mortgage Interest Tax Deductible?

By
Mortgage and Lending with EstaR Mortgage NMLS #241125
https://activerain.com/droplet/5gMq

 

 Contrary to popular belief, mortgage interest is not always tax deductible.  Here's the inside scoop:


1. Do you itemize your tax deductions?

You cannot take the mortgage interest deduction if you are taking the standard deduction. In 2018, the standard deduction is $12,000 for single taxpayers, $18,000 for heads of household, and $24,000 for married taxpayers filing a joint return. Please see a CPA for details.


2. Is Your Home a "Qualified Residence"?

Mortgage interest is only deductible if the mortgage is attached to a "qualified residence". Taxpayers can generally deduct the mortgage interest on two qualified homes:

  • One Primary Residence; and,
  • One Vacation Home

3. Is Your Mortgage Classified as "Acquisition Indebtedness"?

Your mortgage or home equity line of credit is considered "acquisition indebtedness" if it was used to buy, build or improve a qualified residence.  Generally, you can deduct the interest on mortgage balances up to $750,000 of Acquisition Indebtedness. Here are two examples:

  • Jane buys her $500,000 primary residence using a $400,000 mortgage. Jane would be able to deduct the interest on the $400,000 mortgage as acquisition indebtedness because (1) the mortgage was to buy a qualified residence; and, (2) the mortgage falls within the $750,000 limit.
  • Janice buys her $500,000 primary residence with cash.  A year later, Janice does a cash-out refinance and puts a $400,000 mortgage on the home.  The funds are not used for home improvements. Janice would NOT be able to deduct the interest on the new $400,000 mortgage because the funds were not used to buy, build or improve the house.

Three Pitfalls to Avoid

As you can see, it's very important to structure your mortgage in a way where it can be classified as "acquisition indebtedness"! Here are three common mistakes that many people make when choosing a mortgage strategy and deducting their mortgage interest:

  • Pulling cash out of a primary residence to buy a vacation home, and then illegally deducting the interest on that cash-out mortgage (in these cases, it's often better to place a mortgage on the vacation home itself so that it can be classified as "acquisition indebtedness")
  • Paying cash for a home, taking out a mortgage later on, and then illegally deducting the interest on that cash-out mortgage
  • Illegally deducting the interest on mortgage balances that do not qualify as acquisition indebtedness
 



Distinction Between a Qualified Residence and an Investment Property

Everything mentioned above pertains to a mortgage transaction involving a primary home or vacation home that is elected as a “qualified residence” for tax purposes. If your transaction involved an investment property, see IRS Publication 527.

PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.

 

Chris Freck MBA CMPS
Chris Freck MBA CMPS
Broker
NMLS: 241125
EstaR Mortgage
mylender@estarmortgage.com
FaceBook
(510) 463-1003
2413 Webb Avenue, Suite E,
Alameda, California 94501
Corporate NMLS: 1547521
Mutzig Management, Inc dba EstaR mortgage is California Bureau of Real Estate license #2020370. Christopher A. Freck, California BRE license #1454795 with an MLO Endorsement. This material is not from HUD or FHA and has not been approved by HUD or a government agency.         
close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
Real Estate General Information
Tags:
tax
loans
deductible
general info
mortgage interest
mortgage
estar mortgage
interest tax deductible
interest tax

Spam prevention
Show All Comments
Rainmaker
1,737,978
Jeremy K. Frost
Keller Williams Realty - Dripping Springs, TX
Associate Broker, CNE, CRS, ePro, PSA, ABR, SRS

Thank you for keeping us posted and up to date. Best of luck!

Jan 07, 2019 11:14 AM #1
Rainmaker
238,982
Chris Freck
EstaR Mortgage - Alameda, CA
EstaR Mortgage, A Bilingual Brokerage

For more information, we can be reached at 510-463-1003

FaceBook  

MyLender@EstaRmortgage.com  

https://EstaRmortgage.com

Thank you!

Jan 07, 2019 01:18 PM #2
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainmaker
238,982

Chris Freck

EstaR Mortgage, A Bilingual Brokerage
Ask me a Question
*
*
*
*
Spam prevention