For some people, the start of a new year means something fresh and new. This may include a new outlook on life or resolutions to help ensure things get better. However, for almost everyone, it means another time has arrived – tax time.
It is not that tax season is all “bad,” however, the preparation process can be complex. One tax-related factor that can make tax time harder than it already is, is a person’s mortgage deductions. Understanding more about mortgage deductions can help individuals understand what their responsibilities are and how to fill out their taxes to accurately reflect their situation. While it may also be a good idea to speak to mortgage professionals, such as Dustin Dimisa, knowing more about mortgage taxes can help, too.
The Mortgage Interest Deduction
A mortgage interest deduction lets a homeowner deduct from their taxable income the interest paid on a loan used for building, purchasing, or making improvements on their primary residence. It is also possible to claim the deduction on second mortgages for vacation homes or second homes, though there are some limitations with this. The total amount of the deductible mortgage interest will be reported every year by the mortgage company used, which is provided to homeowners via Form 1098.
Some of the things that will qualify as mortgage interest include the interest paid on a primary mortgage, mortgage insurance premiums, interest paid on secondary mortgages, mortgage on a home equity loan, prepaid points. There are also a few things that do not qualify. These include homeowner’s insurance, settlement costs, interest accrued on reverse mortgages, title insurance, extra principal payments, and down payments that were forfeited.
Understanding How the Mortgage Interest Deduction Works
Before reporting the mortgage interest that was paid, it is necessary to know what the amount is, and this information is available on Form 1098, which is provided by a mortgage servicer. The mortgage interest is reported on Schedule A of the 1040 tax form. It is also possible to deduct the interest paid on mortgages for rental properties, which will be reported on a Schedule E. Sometimes, mortgage interest is the only itemized deduction that allows a taxpayer to exceed the set standard deduction on their tax return.
In some cases, homeowners will be able to deduct their entire mortgage interest that was paid, as long as they have met the set requirements. The amount that is allowed for a deduction is dependent on when the mortgage started, the total amount of the mortgage, and the way that the proceeds were used from the mortgage.
If the homeowner’s mortgage matches the set criteria throughout the year, then all of the mortgage interest is able to be deducted.
Consult with a Professional
Unfortunately, mortgage taxes and deductions can be tricky and confusing. If someone is trying to figure this out, consulting with a professional may be a good idea. Being informed is the best way to help ensure the desired results are achieved. Finding the right professional service provider will also help with this situation.