How much mortgage interest can I deduct in 2021?
Understanding the mortgage interest deduction is crucial for homeowners who want to maximize their tax savings. In 2021, the deduction rules have been adjusted, and it’s important to know how these changes affect your eligibility and the amount you can deduct.
Under the Tax Cuts and Jobs Act (TCJA), the mortgage interest deduction is still available for most homeowners, but with some limitations. Here’s a breakdown of the key points to consider:
1. Eligibility: To claim the mortgage interest deduction, you must itemize deductions on your tax return. This means you must have enough itemized deductions to exceed the standard deduction for your filing status.
2. Loan Limit: The deduction is only available for mortgage loans up to $750,000 ($375,000 if married filing separately). This limit applies to loans taken out after December 15, 2017. If you have an existing mortgage that was taken out before this date, the $1 million limit still applies.
3. Property Type: The deduction is only available for loans used to purchase, build, or substantially improve your primary or secondary home. This includes the mortgage on a second home, but not a rental property.
4. Interest Paid: You can deduct the interest you pay on the mortgage for the year, up to the specified loan limit. This includes interest on both the principal and the interest portion of your monthly mortgage payment.
5. Documentation: To claim the deduction, you must provide documentation from your lender, such as a 1098 form, which shows the amount of interest you paid during the tax year.
6. Home Acquisition Date: If you refinanced your mortgage after December 15, 2017, the new loan limit of $750,000 ($375,000 if married filing separately) applies to the remaining balance of the original loan, not the entire new loan amount.
7. Home Equity Loan: The interest on home equity loans is still deductible, but with a few conditions. The loan must be used to buy, build, or substantially improve the taxpayer’s home that secures the loan. Additionally, the total amount of home acquisition debt (including the home equity loan) cannot exceed the $750,000 ($375,000 if married filing separately) limit.
It’s important to consult with a tax professional or financial advisor to ensure you’re taking full advantage of the mortgage interest deduction in 2021. By understanding the rules and limitations, you can maximize your tax savings and reduce your taxable income.
