Paying interest on debt is never fun—especially at today’s inflated rates. But with mortgages, there’s a silver lining: You may be able to deduct mortgage interest on your federal tax return.
Your deduction amount will also depend on how much interest you pay in a given year. This will vary based on yourand how far into your loan you are. Because of the way mortgage interest is calculated, you’ll usually pay more interest early in your loan term than you will later on. Beyond that, the home must also be your primary residence or a second home. We’ll go more into what that means, as well as some other instances when you can write off mortgage interest, below.
You also can’t deduct interest on third, fourth or fifth homes. So, if you own several vacation properties, you’ll have to pick which one you want to deduct interest on—and follow those same rules if you rent it out.are technically types of second mortgages, so the interest you pay on those can qualify for the mortgage interest deduction, too—as long as you use the funds from the loan to “buy, build or substantially improve your home.
Your tax preparer can help you determine whether you need to deduct your points all at once or spread out across your loan term, but generally speaking, if you rolled the cost of the points into your loan balance, the points were particularly pricey for your area or they were charged in place of other common fees or as a flat fee, rather than a percentage of your loan amount, you’ll need to deduct your points ratably.
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