In most cases you can deduct the mortgage interest on your home loan from taxes.
A primary benefit to claiming a deduction for the interest on your mortgage payments is reducing your taxable income and lowers your taxes. Your home mortgage interest payment is a tax-deductible expense if you go about filing your taxes in the correct manner. You should report your home mortgage interest on Internal Revenue Service (IRS) Form 1040 Schedule A along with your other itemized deductions such as property taxes, charitable contributions, and medical expenses. Fill out Form 1040 Schedule A to determine if your itemized deductions exceed your standard deductions. If that is the case, you will save money by itemizing your deductions. Of course, you will also need to complete and submit Form 1040 long form.
In order to claim a deduction for the interest on your mortgage payments you will require the following forms and publications.
- Form 1098 Mortgage Interest Statement from the lender who holds your mortgage
- HUD-1 Settlement Statement from your escrow company if you bought or sold a home
- Publication 936 Home Mortgage Interest Deduction (PDF, 16 pages)
- Schedule A (PDF, 2 page)
- Instructions for Schedule A (PDF, 9 pages)
- Worksheet to calculate the limitation on mortgage interest (found on page 9 of Publication 936)
How to Qualify
All that remains is to determine if you are eligible to receive the income tax deduction for your mortgage interest payment. Mortgage interest is defined as interest paid on loans to buy a home, home equity lines of credit, and construction loans. The total amount you are able to deduct is limited to interest paid on your main home and a second home only. Interest paid on additional homes is not deductible. Additionally, you must be legally liable for the loan. You cannot deduct payments you make for someone else if you are not legally liable to make them.