A mortgage interest deduction allows homeowners to deduct the interest they pay on their mortgages from their taxable income.
For example, if in 2018 you earn a salary of $75,000 and in addition have a mortgage with an outstanding balance of $100,000 at an annual interest rate of 4%, your annual income tax would be computed as follows:
$75,000 salary – $100,000 mortgage interest = $-25,000 taxable income
$-25,000 taxable income x 30% federal tax rate = $7,500 federal tax liability.
The total amount of interest paid on the mortgage – which is an annual expense – must be included in the total amount of income that is subject to taxation.
For this reason, homeowners can claim a deduction that effectively reduces their taxable interest income. This is done by subtracting the amount of mortgage interest paid during the year from their total taxable income.
What Loans Qualify For A Mortgage Interest Deduction?
All home loans that allow the borrower to deduct interest paid on their outstanding balance are eligible for this deduction.
Once again, keep in mind that only the total amount of interest paid during the year can be deducted – not the principal balance of the loan.
Loans with variable rates (i.e., adjustable or floating-rate loans) are also eligible for this deduction, as long as they were taken out on or after January 1st, 2018.
The only loans that do not qualify for this deduction are loans used to purchase or improve rental properties.
What Is The Available Deduction?
The available deduction will depend on how much of the home loan is deductible. For example, if you took out a home loan of $250,000 in 2018 to purchase your primary residence and another $250,000 for renovations, you can deduct the total interest paid on both loans.
If you take out a second mortgage or a line of credit that is connected to your main home equity loan – which is also used to finance
How To Claim The Mortgage Interest Deduction On Your 2022 Tax Return
The process is the same as that used to claim this deduction in 2018. Simply complete IRS Form 1098, Mortgage Interest Statement, which will have been mailed to you by your lender by the end of January 2019 and attach it to your federal tax return when you file it during the first half of 2019.
If you took out a home equity loan on your primary residence after January 1st, 2018 and used it to finance non-home renovations or improvements, you can deduct the interest paid on this loan as well.
This deduction will allow homeowners to claim a tax credit of up to $500 per month for 12 months (or until the end of 2020) if their federal taxable income is $100,000 or less (or $200,000 for married couples filing jointly).
See our related article on the Home Equity Loan Interest Deduction for more information.
Can I Claim A Mortgage Interest Deduction If My Primary Residence Is Being Used As A Rental?
If your primary residence is being used as a rental property, you can claim a deduction for the mortgage interest being paid on this property.
However, if the home sale profit is subject to income tax rules, you must subtract any related rental expenses from the sale profit before computing your taxable income for 2022.
What Qualifies As Deductible Mortgage Interest?
All home loans with an outstanding balance that allow the borrower to deduct interest paid on their outstanding balance are eligible for this deduction.
For example, if you take out a home equity loan in 2020 to pay for renovations or improvements to your primary residence and use it to borrow money at 6% annual interest, you can deduct 6% of the total amount of interest paid every year.
Loans with variable rates (i.e., adjustable or floating-rate loans) are also eligible for this deduction, as long as they were taken out on or after January 1st, 2018 (Note: these loans must begin accruing interest no later than December 31st, 2018).
Loans used to purchase or improve rental properties are not eligible.
The available deduction will depend on how much of the home loan is deductible. For example, if you took out a home equity loan of $250,000 in 2018 to purchase your primary residence and another $250,000 for renovations:
Can I Claim A Mortgage Interest Deduction If I Am Self-Employed?
If you are self-employed, your business income is subject to the same rules that apply to any self-employed individual or small business owner. This means that interest paid on qualifying home loans can be deducted as an “above the line” deduction from your taxable business income.
This deduction can be used to reduce your taxable business income from the total amount of interest paid.
Can I Claim A Mortgage Interest Deduction If My Primary Residence Is Being Used As An Inconvenient Secondary Home?
If your primary residence is being used as an inconvenient secondary home, you can claim a deduction for the mortgage interest being paid on this property if it was purchased before January 1st, 2018.
For example, if you are renting out your primary residence while stationed abroad with the Canadian Armed Forces and take out a home equity loan to finance renovations or improvements to this property which will be rented out in 2020.
How Can I Learn More?
To learn more about Oregon mortgages, Oregon fha programs or Oregon FHA loans visit https://visionmortgagegroup.com/
If you are interested in learning how to refinance your Oregon home loan contact us today to speak with one of our knowledgeable Oregon mortgage lenders and we can explain the refinancing process and what you need to do before starting it.