Homeowners looking to reduce their annual tax liability may find a valuable ally in the form of the home mortgage interest deduction. This tax break allows property owners to deduct the interest paid on home loans, providing a potential reduction in taxable income. However, qualifying for this deduction requires specific conditions to be met, such as itemizing deductions—a process undertaken by only about 10% of tax filers.
To benefit from this deduction, homeowners must ensure that their primary residence serves as their main home for the majority of the year. For those with a second property, spending some time there is also necessary to include it in the deduction calculation. This tax rule enables homeowners to lessen their tax burden by deducting interest from their primary and secondary mortgages, along with refinanced mortgages and home equity lines of credit (HELOCs).
Despite its benefits, most taxpayers opt for the standard deduction over itemizing. For the 2024 tax year, single filers can claim a standard deduction of $14,600, while married couples filing jointly can claim $29,200. To gain from itemizing deductions, a homeowner's total eligible deductions must surpass these standard amounts.
The mortgage interest deduction encompasses a variety of loans, including traditional mortgages and other financing options. For mortgages originated after December 15, 2017, single filers or those married filing jointly can deduct interest on up to $750,000 of mortgage debt. Those married filing separately are eligible to deduct interest on up to $375,000. In contrast, for mortgages initiated on or before December 15, 2017, the limits increase to $1 million for single or joint filers and $500,000 for separate filers.
To claim this deduction, homeowners must itemize deductions using IRS Form 1040 Schedule A. Modern tax software often provides guidance through this process, ensuring taxpayers maximize their potential savings.