They always say that there are only two things truly inevitable in life: death and taxes. Just the latter’s proximity to the former isn’t exactly a ringing endorsement for the financial charge, is it? But despite how much we may dislike the concept, taxes are a necessary tool for keeping our society running smoothly – and they’re not going anywhere anytime soon. Although, there is a little bit of good news if you’re a homeowner: your mortgage interest might actually be deductible when the new year rolls around and the taxman comes knocking.

What Is Mortgage Interest Deduction?

All of this is well and good, but what exactly does it mean? At its core, a mortgage interest deduction is a tax incentive thought up and created specifically for people who own a home. A common itemized deduction for these folks, it allows interest paid on loans taken out in order to build, renovate, or more typically purchase a place of residence to be deducted from one’s taxable income.

For those who care far more about practicality than piecing out financial jargon, this basically just translates into savings on your end since it reduces the amount of taxes you owe. Reduced costs are always a welcome happy surprise, but as should be expected, there are a few conditions and fine print associated with deducting your mortgage interest.

Limits bound up in mortgage amount are included under this umbrella, and the date you bought your home is also a factor when looking at deduction. We’ll talk about this more shortly, yet the main thing to remember is that itemizing must happen on your tax return. Choosing to skip this essentially means relinquishing the possibility of a mortgage interest deduction, so be careful to go through the process should you qualify if you don’t want to miss out!

How Mortgage Interest Deduction Works

While all things loans, taxes, and general finance are kind of our thing here, we thoroughly appreciate when any of the above is made simple enough that our expertise isn’t necessarily required. And luckily, mortgage interest deduction fits the description without too many issues as it’s a relatively straightforward concept.

Originally introduced in 1913 – the same time that income tax first hit the scene – this tax deduction has become a major one for millions around the country ever since. It’s for a good reason, too, because the deduction’s requirements aren’t super restrictive, and acquiring it simply requires you to itemize rather than take the standard deduction. Want to get in on it yourself? 

Well, it all starts by staying on the lookout for a 1098. Typically sent to you by your mortgage loan provider sometime between early January and the middle of February, the form documents your mortgage interest paid within the tax year. Keep this form handy because you’ll need it for the next step: itemizing your taxes. Easy and straightforward, just take your time and take care to copy over the mortgage interest detailed in your 1098 onto the schedule A of your 1040. That’s really all you need to do.

However, there is something to be mindful about! Pay close attention to your deductions. It’s possible even with mortgage interest considered that your itemized deductions could be lower than your standard. In this case, skip the mortgage interest deduction and stick with what makes more financial sense. After all, the whole point of doing this is to save you in the long run – not waste your time and hard-earned cash.

Who (and What) Qualifies for Deduction

The basics of how the mortgage interest deduction works and how one can claim it for themselves aren’t especially difficult to understand. As far as anything tax-centric goes, this is actually remarkably clear and simple. But, before going through the couple steps that accompany the deduction, you should make sure you qualify.

So, who all falls under this banner? Well, homeowners – regardless of whether they’ve got mortgage interest on a primary home or a secondary one. Both situations can allow for a deduction, at least as long as your house is collateral for your loan and that your home has all the primary facilities that legally make it a house (sleeping spaces, kitchen, and bathroom).

Not too much of a chore, overall. Things are slightly more conditionate for mortgages on second homes, though. The key here is to ensure that you’re still using a rental home for a small portion of the year. Any second houses rented out must have you present within them for at least 14 days or more than 10 percent of the days rented at fair market value for a mortgage interest deduction to be possible.

And as for the type of loans that qualify, you’re pretty open-ended here. Mortgages taken out before October 13, 1987, are the best off, allowing for all interest to be deducted because purchase happened before current tax rules went into effect. Though mortgages taken out after this period totaling out to a million dollars or less before 2018 or $750k from 2018 will also receive tax treatment as determined by old rules, meeting these limits despite nowadays lower ones. 

Curious about home equity debt? According to TurboTax, any taken out after that 1987 deadline on a main home and/or second totaling $100k or less through the year for tax years before 2018 was generally deductible no matter your loan proceeds use. Any after 2018 is largely still deductible, but only if that interest was used to build, buy, or extensively repair/renovate your home.