Do you own a house and want to fully utilize the mortgage interest deduction for 2024? We’ve got the information you need to take the most advantage of this tax benefit.
The mortgage interest deduction is a popular tax break for homeowners. It can significantly reduce your tax bill by allowing you to write off the interest paid on your mortgage. To be eligible for this benefits in 2024, you need to meet some requirements. Let’s start by defining what the mortgage interest deduction is.
What is the Mortgage Interest Deduction?
This tax benefit for homeowners lets you subtract the interest on your mortgage from your taxable income. This advantage promotes home ownership and can significantly shrink your yearly tax payments.
If buying a house is in your plans, the mortgage interest deduction could mean making your purchase more affordable by lowering the total home ownership cost. But be aware, there are limits to this benefit.
However, the mortgage interest deduction does have certain limitations. As of 2021, the total amount of deductible interest on a mortgage now ends with only the first $750,000 of a mortgage debt ($375,000 for those married, filing separately).
Please note that it is not appropriate to use this deduction in all cases, as some people do not qualify for it. This credit is only available for homeowners who submit their receipts, so not every homeowner will get this tax deduction.
Want to apply for this mortgage interest deduction in 2024? Here are five helpful tips to meet the criteria and boost your tax savings:
How To Qualify For Mortgage Interest Deduction
- Look at the Limit
- Property Ownership
- Calculate the Interest
- List your Deductions
- Don’t Go Over the Loan Limit
1. Look at the Limit
For 2024, the maximum limit is $750,000 for jointly filing married couples. For separately filing married couples, it’s $375,000. Mortgage debts up to these amounts are the only ones eligible for this deduction.
Make sure your mortgage is within these limits to qualify. If your mortgage overshoots the IRS limit, you can’t claim the deduction.
Find a tax consultant or a financial advisor to make sure you have the best tax benefits and take all the deductions possible. Make an effort to stay within the limit, and you are on the right track to claiming the mortgage interest deduction.
2. Property Ownership
You need to own the mortgage property to qualify. So, even if you rent the property, you can still deduct the interest if the property is being used for business purposes. This is an important note for residential property owners who wish to receive this tax rebate.
Remember, claiming a deduction means you must list them on your tax form. So, you can’t use the standard deduction. This could lead to a bigger tax cut. A tax pro can help you get the most from your mortgage interest deduction, which has limits.
3. Calculate the Interest
How much interest did you pay? Find this on Form 1098 from your lender. By figuring this out correctly, you’re making sure you get the most deduction the IRS allows.
Note that you can only deduct the interest from your main home and one other property. Also, there’s a cap on how much you can deduct based on your mortgage size.
4. List Your Deductions
To get the mortgage interest deduction, you need to list all your deductions on your tax form. Keep track of all your tax-cutting expenses during the year. This includes mortgage interest as well as property tax and donations. If you do this right, you could lower your taxable income and pay less tax.
Listing your deductions is like showing the IRS a receipt of your qualifying expenses. It’s better than the standard deduction, especially if those receipts add up to more. In that case, you could end up saving a lot on taxes.
5. Don’t Go Over the Loan Limit
Sticking to the loan limit can mean big tax savings—potentially thousands each year. So, when you’re considering a mortgage, pay close attention to the loan amount. Make sure it doesn’t go over the $750,000 limit.
How is mortgage interest calculated?
Mortgage interest is calculated by multiplying the outstanding principal balance with the current interest rate. For each month, the interest is calculated as the annual interest rate divided by 12. The remaining balance is multiplied by this number.
Typically, mortgage interest is calculated using the simple interest formula: P x R x T. In this equation, P is the principal amount of the loan (the funds loaned initially), R is the annual interest rate, and T is the period to fully repay the loan.
For example, if you took out a $200,000 mortgage with an annual interest rate of 4% and a 30-year term, the calculation would look like this: $200,000 x 4% x 30. The loan would yield a gain of $240,000 throughout its period.
As you pay your monthly mortgage, over time, the interest portion goes down while the principal portion increases. The reason is that with every payment, proportions are adjusted between your interest and principal repayments.
Let’s take a $300,000 mortgage at 4% as an example. The total interest in the very first year would be near $12,000. Now, if your tax racket is 25%, you are eligible to deduct $3,000 from your taxable earnings, saving $750 in tax payments.
Keep in mind that mortgage interest tax deductions come with a limit. Since 2021, the threshold for interest deduction on mortgage debt has been $750,000 (or $375,000 for married couples who file separately).
What’s not deductible?
While mortgage interest is generally deductible, there are certain limitations and exceptions. For example, interest on home equity loans used for purposes other than home improvements may not be deductible. In addition, mortgage interest on loans exceeding the IRS limits may not be fully deductible.
What qualifies as mortgage interest?
Loan Purpose: The mortgage interest must be paid on a loan used to buy, build, or substantially improve a qualified residence. This includes loans used to purchase a home as well as home equity loans or lines of credit (HELOCs) used for home improvements.
Secured Debt: The loan must be secured by a qualified residence. This means the lender has a legal claim on the property if the borrower fails to repay the loan.
Ownership and Use: You must have an ownership interest in the home, and it must be used as a qualified residence. Typically, this means you must live in the home for a certain period during the year, and it must be your primary residence or a second home.
Debt Limitations: There are limits on the amount of mortgage debt on which you can claim the deduction. Since the revision in the tax law in 2017, mortgage debt worth $750,000 for married couples filing jointly or $375,000 for married couples filing separately or single filers are eligible for the deduction.
However, the limits might be changed accordingly; therefore, the most recent limits should be verified.
Qualified Residences: There can be more than one second home in addition to the main home that may be your qualified residence. Vacation homes and rental properties fall under this category but note that they have their own set of rules and regulations.
Interest Reporting: The deduction can only be taken when the interest is reported correctly. In most cases, your lender will send you Form 1098, which will contain information about the amount of mortgage interest you have paid during the tax year.
Also read:Â Get Approved For A $100000 Loan: How To Apply
Conclusion
To qualify for a mortgage interest deduction, an applicant must make sure they are eligible by fulfilling the requirements, which include owning a home that is considered their main residence.
In addition, if their tax contribution is up-to-date and they make sure to pay the mortgage on time, they can boost their chances of getting this much-needed deduction.
