Mortgage Interest Deduction

The mortgage interest tax deduction is the biggest benefit of owning a home and actually reduces the cost of owning a home. Homeowners can deduct from their taxes the mortgage interest paid on their primary residence.

Due to the complex nature of the income tax laws in the United States, only a competent tax professional is able to tell you what your exact benefit would be from deducting mortgage interest.

If you have an interest only mortgage, all of your mortgage payment excluding your escrow impounds would be tax deductable.

In addition to the mortgage interest being deductible, some of the closing costs may also be deducted. Depending on whether the closing costs were incurred in a purchase transaction or a refinance, some of these costs may be deducted in the same tax year or over the life of the loan. As always, consult with a certified tax accountant before making any such deductions.

Your accountant may also be able to confirm that generally interest on the loan amount exceeding 100% of the property's value is not deductible on your IRS tax return.

Mortgage insurance is not tax deductible. Taking on a loan with a higher rate with no mortgage insurance may benefit a borrower more in terms of tax deductible interest. As always check with your tax adviser first.

In the late 1980s Congress changed the laws for mortgage tax deductions. These new rules took effect in October, 1987 and did contain some "grandfathering" provisions. If you got a mortgage before this date, all the interest was deductible. If you refinanced this mortgage, the portion that was the original principal would be deductible.

After 1987 one of the major changes was the inability to deduct anything over the "fair market value" of the home and the limit of $1 million debt limit per property. Please contact a tax professional to receive a full explanation of the tax benefits for your home.

» DISCLAIMER: The information contained in this article on 'Mortgage Interest Deduction' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.