Tax forms can help walk you through your filing step by step. To make sure you’re filing the right form, follow these steps to deduct mortgage interest on your 2024 taxes.
1. Choose A Standard Deduction Or An Itemized Deduction
If you choose the standard deduction, you won’t need to complete more forms and provide proof for all your deductions. It’s more of a “no questions asked” deduction, with a flat dollar amount that’s the same for most taxpayers. For the 2023 tax year, which will be the relevant year for April 2024 tax payments, the standard deduction is:
$14,600 for single filers
$29,200 for married couples filing jointly
$14,600 for married couples filing separately
$21,900 for heads of households
If you choose an itemized deduction, you can pick and choose from various deductions, including student loan interest, charitable contributions, medical expenses and more. To itemize your deductions, you must fill out additional forms to list each deduction. Be prepared to submit records, receipts and other documents that validate them.
Both standard and itemized deductions reduce your taxable income.
2. Get Your 1098 From Your Lender Or Mortgage Servicer
To fill out the information about the mortgage interest you paid during the tax year, you’ll need a Form 1098 from your mortgage lender or mortgage servicer (the company you make your mortgage payments to). Form 1098 details how much you paid in mortgage interest and points during the past year. It’s the proof you’ll need for your mortgage interest deduction.
Your lender or mortgage servicer will send the form at the beginning of the year your taxes are due. If you don’t receive it by mid-February, have questions we don’t cover in our 1098 guide or need help understanding your form, contact your lender.
3. Choose The Correct Tax Forms
You’ll need to itemize your deductions to claim the mortgage interest deduction. Since mortgage interest is an itemized deduction, you’ll use Schedule A (Form 1040), an itemized tax form, and the standard 1040 form.
Schedule A lists other deductions, including medical and dental expenses, taxes you paid and donations to charity. Go to the mortgage interest deduction part on line 8 and fill in the mortgage interest information from your 1098.
If you make money from the home – whether as a rental property or you use it for your business – you’ll need to fill out a different form because the way interest is deducted from your taxes depends on how you use the loan, not the loan itself.
You may need to use the following forms depending on your situation:
Schedule E:If you want to deduct the interest you pay on rental properties, use Schedule E (Form 1040) to report it. The form is used for supplemental income from rental real estate.
Schedule C: If you use part of your house as a home office or use money from your mortgage for business purposes, you may need to fill out Schedule C (Form 1040 or 1040-SR if you’re 65 or older) to report the profit or loss from a business you owned or operated.
You’ll list mortgage interest as an expense on either of these forms. Whatever mortgage interest you’re deducting or form you’re using, it’s important to know what qualifies as interest and what doesn’t. If you’re itemizing your deductions, read on.
Mortgage Interest Deduction Example
So, how should you decide between itemizing or taking the standard deduction? It all comes down to which one saves you more money. If taking the standard deduction saves you more money than itemized deductions, take the standard deduction. If itemizing saves more, itemize your deductions. But you can’t claim both. You must choose one or the other.
Let’s say you’re a single filer and itemize the following deductions: mortgage interest ($8,000), student loan interest ($1,400) and charitable donations ($2,000) for a total of $11,400. You should take the $14,600 standard deduction because an additional $3,200 would be deducted from your taxable income.
Now let’s say your mortgage interest is $12,000, your charitable donations were $2,000 and your student loan interest was $1,600. Your itemized deductions would total $15,600. In this case, taking the itemized deduction would make more sense because it would reduce your taxable income by $700 more than the standard deduction.
If you’re paying someone to prepare your taxes, itemizing your taxes may cost more because itemizing requires more work. You should factor in the cost of tax preparation when deciding which approach will save you the most money.
You can deduct the interest you paid on the first $750,000 of your mortgage during the relevant tax year. For married couples filing separately, that limit is $375,000, according to the Internal Revenue Service.
Is mortgage insurance tax-deductible? No, private mortgage insurance isn't tax-deductible now. The mortgage insurance deduction was only available for eligible homeowners for the 2018–2021 tax years.
You can deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt for your primary home or a second home. If you are married filing separately, the limit drops to $375,000.
Before the TCJA, the mortgage interest deduction limit was on loans up to $1 million. Now, the loan limit is $750,000. For the 2024 tax year, married couples filing jointly, single filers and heads of households can deduct up to $750,000.Married taxpayers filing separately can deduct up to $375,000 each.
Divide the maximum debt limit by your remaining mortgage balance, then multiply that result by the interest paid to figure out your deduction. Let's consider an example: Your mortgage is $1 million. Since the deduction limit is $750,000, you'll divide $750,000 by $1 million to get 0.75.
The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. Otherwise, it is considered personal interest and isn't deductible.
For 2024, the standard deduction amount has been increased for all filers, and the amounts are as follows. Single or Married Filing Separately—$14,600.Married Filing Jointly or Qualifying Surviving Spouse—$29,200.Head of Household—$21,900.
The IRS may let you deduct interest paid on your mortgage on your federal income tax return. To claim this deduction, you need to itemize — you cannot take the standard deduction.
PMI is mandatory for 2-years unless substantial improvements have been made. For loans that are less than two years old, there must be substantial improvements made to the home that increased the value in order to use the current market value.
The interest you pay on a qualified mortgage or home equity loan is deductible on your federal tax return, but only if you itemize your deductions and follow IRS guidelines. For many taxpayers, the standard deduction beats itemizing, even after deducting mortgage interest.
Which Closing Costs Are Not Tax-Deductible? Typically, the only closing costs that are tax-deductible are payments toward mortgage interest, buying points or property taxes. Other closing costs are not.
Generally, the debt must be the taxpayer's, not someone else's. Treas. Reg. § 1.163-1(b) permits a deduction for interest paid on a mortgage when a taxpayer is the legal or equitable owner of the property, even though the taxpayer is not directly liable for the mortgage.
So, let's say for example that you make $75,000 this year and spend $10,000 of that on mortgage interest—that's about the amount you would spend in the first year of a $250,000 mortgage with a 4% interest rate. By taking the mortgage interest deduction, your taxable income would fall to $65,000.
The current $750,000 limitation was introduced as part of the Tax Cuts and Jobs Act (TCJA) and will revert to the old limitation of $1 million after 2025. Though the deduction is often viewed as a policy that increases the incidence of homeownership, research suggests it does not accomplish this goal.
Key Takeaways: Form 1098 is used to report mortgage interest paid for the year. Lenders must issue Form 1098 when a homeowner has paid $600 or more in mortgage interest during the tax year.
Taxpayers can deduct the interest paid on first and second mortgages up to $1,000,000 in mortgage debt (the limit is $500,000 if married and filing separately). Any interest paid on first or second mortgages over this amount is not tax deductible.
Yes, your deduction is generally limited if all mortgages used to buy, construct, or improve your first home (and second home if applicable) total more than $1 million ($500,000 if you use married filing separately status) for tax years prior to 2018. Beginning in 2018, this limit is lowered to $750,000.
This requires you to use Form 1040 to file your taxes, and Schedule A to report your itemized expenses. The interest payments and points you pay are combined with all other deductions you claim on Schedule A; the total of which reduces your income that is subject to tax on the second page of your tax return.
Under the TCJA, homeowners can deduct mortgage interest on up to $750,000 of qualified residence loans ($375,000 for married individuals filing separately). This limit applies to the combined total of mortgage debt used to acquire, build, or substantially improve a qualified residence.
Why is my Mortgage Interest not affecting my refund amount? One important factor to remember is that you must be able to itemize your deductions to take advantage of claiming the interest on your return.
Regardless of the tax credit percentage issued, the Internal Revenue Service caps the maxi mum tax credit that may be taken for any given year at $2,000 for each MCC recipient. The MCC tax credit remains in place for the life of the mortgage, so long as the residence remains the borrower's principal residence.
"The good news is the mortgage interest rate forecasts are reflecting a gradual decrease through year-end, if the Fed is satisfied with the decrease in inflation. I believe by the end of 2024, we will see rates fall to closer to the mid to slightly lower 6% interest," says Christensen.
The FOMC has met twice in 2024, first in January and then again in March. Since then, the Fed has predicted three quarter-percentage cuts throughout 2024, but only if the market allows. The remaining FOMC meetings this year are: April 30 and May 1, 2024.
Introduction: My name is Annamae Dooley, I am a witty, quaint, lovely, clever, rich, sparkling, powerful person who loves writing and wants to share my knowledge and understanding with you.
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