Home Mortgage Interest Deduction Limits

Mortgage interest deduction is also like real estate property taxes, medical expenses, and charitable contributions. An interest deduction on property loan permits to reduce taxable income on interest paid on the mortgage. Taxpayers paying mortgage interest should know that their itemized deductions must not go above their usual deduction.

Home Mortgage Interest Deduction Limits

They can save their money on their taxes by itemizing but with some limitations.

Dollar Limitations

There is less amount of interest which can be deducted on mortgage each year. These are of two types one is called “home acquisition debt” and the other is called “home equity debt”.

  • Home Acquisition Debt: Interest cannot be deducted on more than $1,000,000 of home mortgage loan for most important home and less important residence. Home acquisition debt means any loan whose intention is to buy, to build, or significantly to improve a qualified home. The limit is reduced by 50% if you are married, filing for separation. For example, you borrowed $850,000 against your primary residence and $450,000 against your secondary residence and both loans were used only to buy your residences. The loan amounts add up to $1,300,000. As your loan total go beyond the $1 million limit, your mortgage deduction is limited. Suppose both loans have a fixed interest rate of 6% and your total interest paid for the year was $78,000.  But as it is home acquisition debt so interest on the first $1 million only should be deducted. Thus only $60,000 is deduct-able.
  • Home Equity Debt: In this type of loan interest on more than $100,000 of home equity debt cannot be deducted for most important home and less important residence. Home equity debt means any loan whose reason is not to buy, to build, or significantly to renew a qualified home. The home equity debt is bound to reduced up to 50% if you are married, filing for separation. If indebtedness is beyond the fair market value of home then deduction for home equity interest may be reduced. It can be even less the $100,000 limit.

Jointly Held Mortgages

A person is allowed to deduct just the interest that he pays, in spite of which he receives for the joint loan obtained by two or more borrowers.

Detailed information is available for deducting interest and for distribution of interest among more than two borrowers. Payments cleared by co-borrower, to avoid foreclosure can also deduct the interest at the will of co-borrower. Even if the interest was supposed to be paid by someone else.

Home Construction Loans

Home Construction Loans

Construction expenses are also deduct-able, for which the proceeds have to be utilized to buy the land and for house building. The cost for two years before construction is completed is considered with the one million U.S. dollars of debt to buy a house. In case you want to sell a property after above deductions then you have to give some money back.

Points

Points paid on acquisition debt for main and less important residences are fully deductible in the year of payment. On the other hand, points paid on refinancing must be amortized over the life of the loan.

 

People who liked this Post also read

  • Reverse Loan Rates
    Reverse mortgage loans are the good options to refinance your mortgages without having to pay off monthly loan payments. These loans are also helpful in reducing the monthly expenses by cutting down monthly loan payments....
  • What is Home Mortgage Interest Deductions?
    The major benefits for home mortgage finance include the tax deduction allowed for interest cost of mortgage. The deductions are allowed subject to fulfillment of some conditions. The home equity is calculated by deducting mortgage amount from the fair ma...
  • FACTS to Know about Home Loan Modification Program
    If you are a financially troubled mortgage holder and find it is difficult to pay off your mortgage payments then you can take help from a home loan modification program. There are certain important facts about this programs which you should be aware of....
  • Basics of Second Mortgage
    Second mortgage is a good option for those who are facing financial problems and are in urgent need of cash amount.The major drawback of second mortgage is that borrowers are more likely to lose their home ownerships if they fail to pay off their first an...
  • Best Ways For Funding For Dream House
    One can easily determine the interest rates directly from a borrower's credit score. It is highly recommended that a borrower should get credit reports from all three nationally recognized credit reporting agencies before they go for shopping around for d...


is an experienced journalist.

Leave a Reply

CommentLuv badge

© 2011 Loan Mortgage Credit!. All rights reserved.