{"id":1631,"date":"2019-03-08T14:19:58","date_gmt":"2019-03-08T14:19:58","guid":{"rendered":"https:\/\/www.irstaxapp.com\/?p=1631"},"modified":"2020-03-15T18:00:41","modified_gmt":"2020-03-15T18:00:41","slug":"7-rules-for-mortgage-interest-deduction-while-computing-taxable-income","status":"publish","type":"post","link":"https:\/\/www.irstaxapp.com\/7-rules-for-mortgage-interest-deduction-while-computing-taxable-income\/","title":{"rendered":"7  FAQs on Mortgage Interest Deduction while Computing Taxable Income"},"content":{"rendered":"\n<p>The mortgage interest deduction is one of the most commonly utilized tax relief under 26 US Code ( i.e Internal Revenue Code)\u00a0by\u00a0an Individual. \u00a0<a rel=\"noreferrer noopener\" href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/163\" target=\"_blank\">Section 163(h) of the Internal Revenue Code\u00a0<\/a>\u00a0deals with law about exclusion of home loan interest expense . Here are the answers of seven questions that will clarify if you can deduct the interest on home loan from your taxable income .<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-661ce806934d7\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-661ce806934d7\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/7-rules-for-mortgage-interest-deduction-while-computing-taxable-income\/#1_Is_the_mortgage_deduction_available_if_I_opted_for_standard_deduction\" title=\"1. Is the mortgage deduction available if I opted for standard deduction ?\">1. Is the mortgage deduction available if I opted for standard deduction ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/7-rules-for-mortgage-interest-deduction-while-computing-taxable-income\/#2What_is_counted_as_mortgage_interest\" title=\"2.What is counted as mortgage interest ?\">2.What is counted as mortgage interest ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/7-rules-for-mortgage-interest-deduction-while-computing-taxable-income\/#3_What_is_the_meaning_of_house\" title=\"3. What is the meaning of house ?\">3. What is the meaning of house ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/7-rules-for-mortgage-interest-deduction-while-computing-taxable-income\/#4_Who_can_claim_exclusion_for_home_loan_interest\" title=\"4. Who can claim exclusion for home loan interest ?\">4. Who can claim exclusion for home loan interest ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.irstaxapp.com\/7-rules-for-mortgage-interest-deduction-while-computing-taxable-income\/#5_What_is_the_maximum_deduction_allowed\" title=\"5. What is the maximum deduction allowed?\">5. What is the maximum deduction allowed?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.irstaxapp.com\/7-rules-for-mortgage-interest-deduction-while-computing-taxable-income\/#6_What_about_interest_on_mortgage_refinance\" title=\"6. What about interest on mortgage refinance?\">6. What about interest on mortgage refinance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.irstaxapp.com\/7-rules-for-mortgage-interest-deduction-while-computing-taxable-income\/#7_Do_you_need_to_maintain_records_to_prove_claim_of_deduction\" title=\"7. Do you need to maintain records to prove claim of deduction?\">7. Do you need to maintain records to prove claim of deduction?<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1_Is_the_mortgage_deduction_available_if_I_opted_for_standard_deduction\"><\/span>1. Is the mortgage deduction available if I opted for standard deduction ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The answer is a definite No . After the Tax Cuts and Jobs Act , a taxpayer can deduct the interest, if he\/she itemizes their deductions while computing their income tax liability. But , if you itemize the deductions , you can not claim standard deduction. So, most important aspect is to consider\u00a0<em>whether itemized deductions that include the <a href=\"https:\/\/www.irstaxapp.com\/mortgage-calculator-with-taxes\/\">mortgage <\/a>interest is more than the\u00a0<\/em><a rel=\"noreferrer noopener\" href=\"https:\/\/www.irstaxapp.com\/2019-2018-standard-deduction\/\" target=\"_blank\"><em>standard deduction<\/em><\/a><em>?\u00a0<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2What_is_counted_as_mortgage_interest\"><\/span>2.What is counted as mortgage interest ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Only the&nbsp;loan that is secured against the home is considered personal loan and shall not be counted for tax deduction part. Some examples of mortgage loan are :<\/p>\n\n\n\n<ul><li>A mortgage to buy a house for yourself<\/li><li>A home equity loan<\/li><li>A second mortgage<\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\">Mortgage Should not be on 3rd Home!<\/h4>\n\n\n\n<p>You can not deduct <a href=\"https:\/\/www.irstaxapp.com\/mortgage-calculator-with-extra-payments\/\">interest on a mortgage<\/a> for a third home, a fourth home, etc because the deduction is restricted up to second home mortgage only . Even for the mortgage on second\u00a0<strong>home<\/strong>\u00a0, interest is deductible only if\u00a0\u00a0the requirements of\u00a0<a rel=\"noreferrer noopener\" href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/280A\" target=\"_blank\">IRC \u00c2\u00a7280A(d)(1)<\/a>\u00a0is satisfied . The requirement is that the second home must be used for personal purposes for<\/p>\n\n\n\n<ul><li>at least 14 days per year&nbsp;<strong>or<\/strong><\/li><li>10% of the number of days it is rented during the course of a year.<\/li><\/ul>\n\n\n\n<p>Allowable mortgage&nbsp;interest is one that relates to either<\/p>\n\n\n\n<ul><li><em>loans taken for purchase an existing house, or improving an existing home or&nbsp;for the new construction of house or<\/em><\/li><li><em>loan for any other purpose&nbsp;like&nbsp;buying furniture or other assets for house . But the loan must be secured by the residence.&nbsp;<\/em><\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3_What_is_the_meaning_of_house\"><\/span>3. What is the meaning of house ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The meaning of house for the purpose of deduction of home loan interest under section 163 of Internal Revenue Code. includes house, condominium, cooperative, mobile home, boat, recreational vehicle or similar property that has sleeping, cooking and toilet facilities<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4_Who_can_claim_exclusion_for_home_loan_interest\"><\/span>4. Who can claim exclusion for home loan interest ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Only the individual who borrows the loan and obligated to pay the debt can claim deduction of mortgage interest . However if you or your spouse&nbsp;jointly took loan , then both of you can claim the deduction for interest.&nbsp;&nbsp;Readers should also note the&nbsp;&nbsp;<a href=\"https:\/\/www.law.cornell.edu\/cfr\/text\/26\/1.163-1\" target=\"_blank\" rel=\"noreferrer noopener\">Treas. Reg. Sec. 1.163-1(b)<\/a>, that mortgage interest that is paid by a taxpayer who is the (legal or equitable) owner of the property is deductible, even if that taxpayer is not directly liable on the bond or note that is secured by the mortgage.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5_What_is_the_maximum_deduction_allowed\"><\/span>5. What is the maximum deduction allowed?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The aggregate mortgage interest that&nbsp;<strong><em>you can deduct is&nbsp;$1 million<\/em><\/strong>($500,000 if you use married filing separately status). Apart from that you can also deduct interest on home equity debt of up to $100,000 ($50,000 if you\u00e2\u20ac\u2122re married and file separately) .<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"6_What_about_interest_on_mortgage_refinance\"><\/span>6. What about interest on mortgage refinance?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The answer is a definite Yes .<\/p>\n\n\n\n<ul><li>On refinancing the old mortgage , the balance of the new mortgage is also treated as acquisition debt up to the balance of the old mortgage.<\/li><li>The unused balance of the the old mortgage balance not used to buy, build, or substantially improve your home might qualify as home equity debt.<\/li><li>The home equity debt provision ( refer&nbsp;<a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/163\" target=\"_blank\" rel=\"noreferrer noopener\">section 163(h)(3)c) of IRC<\/a>&nbsp;provides that interest on up to $100,000 of that excess debt may&nbsp;also be deductible .<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"7_Do_you_need_to_maintain_records_to_prove_claim_of_deduction\"><\/span>7. Do you need to maintain records to prove claim of deduction?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For filing taxes, you computed on some basis , Right ? So , those documents may be required required if your case selected for the&nbsp;<a href=\"https:\/\/www.irstaxapp.com\/how-far-back-can-irs-audit\/\" target=\"_blank\" rel=\"noreferrer noopener\">IRS Audit<\/a>&nbsp;or scrutiny .It is is better you keep following documents safely :<\/p>\n\n\n\n<ol><li><strong>Copies of Form 1098<\/strong>:&nbsp;that is given by&nbsp;the lender if you purchased your home in the current year, any deductible points you paid.<\/li><li>Your closing statement from a refinancing that shows the points you paid, if any, to refinance the loan on your property.<\/li><li>The identity details of the person from whom you bought house. So his\/her personal details like&nbsp;name, Social Security number and address should be maintained. IRS may require it for verification<\/li><li>IRS will also verify if you\u00e2\u20ac\u2122re deducting the eligible portion of your interest over the life of your mortgage in case of refinancing of the mortgage. So past return copies should be maintained. Although IRS has those returns, but is more for ready reference<\/li><\/ol>\n\n\n\n<p>Refer&nbsp;&nbsp;<a href=\"http:\/\/www.irs.gov\/pub\/irs-pdf\/p936.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">IRS Publication 936: Home Mortgage&nbsp;<\/a>.<br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Do you know if you are eligible for tax deduction related to mortgage interest you paid? Seven answers to most important questions reltaed to tax deduction of home loan interest<\/p>\n","protected":false},"author":1,"featured_media":2036,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[54,9],"tags":[986,987,988],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/1631"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=1631"}],"version-history":[{"count":0,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/1631\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media\/2036"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=1631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/categories?post=1631"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/tags?post=1631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}