The less taxable money you make in a given year, the less money you will owe in taxes, generally speaking. In order to determine how much of the money you earned is taxable, you have to subtract qualifying deductions from your gross income. The more deductions you qualify for, the lower your taxable income will be, and the less money you will owe in taxes. This can translate into a higher tax return or a lower amount of taxes you have to pay when you file each year.
One of the most common tax deductions is the home mortgage tax deduction. This deduction saves Americans approximately $100 billion in taxes each year.
When you claim the home mortgage tax deduction, your taxable income is decreased by the amount of interest you paid on your mortgage during the previous year. You can add this deduction to the rest of your deductions to see if you qualify for a higher tax break than you would if you just claimed the standard deduction.
Each lender to whom you have paid mortgage interest during the year will send you a 1098 form that lists the exact amount of interest you have paid. This is how you will know how much you can claim for the home mortgage tax deduction. In addition, this form will tell you how much you may have paid in home mortgage insurance premiums, which can also be deducted. Remember that you must itemize your deductions on your tax forms in order to take advantage of this tax break.
It’s not only your primary residence that qualifies for the home mortgage tax deduction. A deduction may be claimed for the mortgage interest of up to two homes and you can claim up to $1 million in total home acquisition debt per year.
Qualifying loans are those in which the “home” is serving as collateral for the lender. Homes bought with personal loans or other unsecured loans would not qualify. Any loans taken out to buy, build, or make improvements to a home will qualify for the deduction. This means that home improvement or home equity loans will also help to give you a tax break.