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Mortgage Interest Deduction: What’s Deductible in 2019?

Homeownership comes with several perks — one of them is the ability to deduct the interest portion of your monthly mortgage payments. The mortgage interest deduction allows you to reduce your taxable income by the amount of interest paid on your home loan during the previous year, which can add up to significant savings come tax time.

There have been no changes to the mortgage interest deduction since the Tax Cuts and Jobs Act of 2017, which says individual taxpayers are allowed to deduct interest paid on up to $750,000 of mortgage debt.

In this article, we’ll cover:

What is the mortgage interest deduction?

The mortgage interest deduction is used to deduct the interest paid on a home loan in a given year. Taxpayers can deduct the interest paid on mortgages secured by their primary residence and a second home, if applicable, for loans used to buy, build or substantially improve the property.

Since the Tax Cuts and Jobs Act was enacted, taxpayers who took out a mortgage after Dec. 15, 2017, can deduct only the interest paid on up to $750,000 of mortgage debt, or $375,000 for married couples filing separately. The mortgage interest deduction limit for home loans originated before Dec. 15, 2017, is $1 million for individuals and $500,000 for married couples filing separately.

Your mortgage lender will send you a Form 1098 by Jan. 31, which reports how much you paid in mortgage interest during the previous year. If you have more than one mortgage, including a home equity loan or home equity line of credit, you should receive a Form 1098 for each loan.

Keep your total interest amount in mind and compare it to the standard deduction that applies to your taxpayer filing status. For example, the standard deduction amount for individual taxpayers is $12,000. If the interest you paid the year prior is higher than your standard deduction amount, you’ll want to itemize each of the deductions you qualify for, including the mortgage interest tax deduction. Otherwise, it might be more beneficial to take the standard deduction. Consult a tax professional for additional guidance.

What types of mortgage interest are deductible?

The interest portion of your monthly mortgage payment isn’t the only interest you can deduct on your tax bill. Here are other types of deductible interest to keep in mind, according to the Internal Revenue Service:

  • Mortgage points, or prepaid interest, paid at closing
  • Late payment charges that aren’t associated with a specific loan service
  • Prepayment penalties assessed for early repayment of your loan
  • Interest paid on the mortgage before the sale date
  • Interest paid through participation in the Hardest Hit Fund and emergency homeowners loan programs

Can I claim a home equity loan interest deduction?

You can take a home equity loan interest deduction, but the mortgage interest deduction rules also apply to these types of loans. In other words, you can only deduct the interest paid on home equity loans or lines of credit in cases where you borrowed money to buy, build or substantially improve your main home or second home. Second mortgages used to consolidate debt, cover college expenses or fund some other goal won’t qualify for the deduction.

The dollar limits mentioned above for single taxpayers and married taxpayers filing separately — $750,000 and $350,000, respectively — apply to the total amount of loans secured by your primary home or second home. That includes first mortgages and home equity loans or lines.

For example, if you’re single, have a $400,000 mortgage on your main home and a $400,000 HELOC, you have $800,000 in mortgage debt. However, you can deduct the interest paid on only $750,000 of that amount.

A quick note about cash-out refinances: The interest paid on the equity you cash out as part of the transaction isn’t deductible, unless those funds are used for home improvements.

How to claim the mortgage interest deduction in 2019

As you gather your tax-related documents to prepare for the filing season, review the following steps to claim the mortgage interest deduction on your 2019 tax bill:

  • Wait for your Form 1098(s) from your mortgage lender(s). Review the reported amount of interest paid in Box 1 on each form.
  • Compare the standard deduction amount you qualify for to your total deductible mortgage interest.
  • Determine whether to take the standard deduction or to itemize your deductions. If your total itemized deduction amount doesn’t exceed the standard deduction amount for your tax filing status, then you won’t itemize deductions.
  • If the total amount of your itemized deductions is higher than your standard deduction amount, then you’d claim the mortgage interest deduction and any other deductions you qualify for on Schedule A of your tax return.
 

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