A home is one of the largest investments an individual makes during his or her lifetime, and one of the benefits homeowners are privy to is a mortgage interest deduction during filing season. However, these deductions can be complex in some cases, and understanding the basics may help current owners start planning ahead.
Mortgage interest deductions allow individuals who own a primary residence or second home to deduct the mortgage payments they made to a lender. In order to claim a mortgage interest deduction, homeowners must itemize their taxes rather than taking the standard deduction.
However, they must meet several rules in order to qualify. First, mortgage interest can only be deducted if the debt is secured and the home is the collateral, according to Fox Business. This means that wraparound mortgages are excluded from interest deductions. Mortgage interest deductions can be claimed for primary and secondary homes, but certain stipulations apply for the latter.
Many consumers with second homes rent out their properties during part of the year and use it as their personal residence for another time period. Homeowners can still claim the deduction when they travel between these two if they reside in their home for more than 14 days out of the year, or more than 10 percent the number of days the home is rented out - whichever period is longer.
Further, individuals must have a creditor-lender relationship and take on personal liability for the mortgage in order to be able to claim interest on the property. This means that parents who pay their children's mortgage interest as a gift cannot deduct the amount on their own taxes.
Homeowners may also be able to deduct points if they meet certain qualifications. The rules surrounding the deduction of points in particular can be tricky, so most experts encourage homeowners to consult with their tax preparer
to determine if they qualify.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.
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