This BLOG On How Does Mortgage Interest Tax Deduction Work For Homeowners Was UPDATED And PUBLISHED On November 19th, 2020
There are many benefits of home ownership.
- There are many benefits in being homeowners
- Homeowners do not need permission to remodel
The can do the following without asking for permission by their landlord:
- need to paint walls
- put up wallpaper
- have pets
- no restriction on dog size
- potential of appreciation
- last but not least, the ability for mortgage interest tax deduction
In this article, we will cover and discuss the benefits of homeownership versus being a renter.
How Does Mortgage Interest Deduction Work: Renters Do Not Get Tax Benefits
Renting an apartment or home does not give the benefit of deducting rental payments on income taxes:
- However, the interest payment on home is a tax-deductible line item on income taxes
- Say a renter is currently renting a home for $1,500 per month
- None of that $1,500 can be deducted on income taxes
- Say a homeowner has housing payment of $1,500 per month
- But out of that $1,500, $100 is principal and $1,400 is mortgage interest
- The $1,400 mortgage interest payment is deductible on homeowners federal income taxes
- That can be huge savings for homeowners
- The Internal Revenue Service allows mortgage interest tax deduction if the mortgage interest is from a secured loan
All mortgage interest is secured from the homeowners home.
Understanding Mortgage Interest Tax Deduction
I am sure that many heard that one of the main benefits of owning own home is homeowners can write off mortgage payments. But what does writing off mortgage payments actually mean?
- Whether a person is a renter or homeowner, they have a monthly housing payments
- Either make to landlord or mortgage company
- Renters renting, monthly rent cannot be used as a write off on tax returns
- Renters cannot claim monthly rent payments as an expense on tax returns
- However, a homeowner with mortgage secured by home part of housing payment can be used as a tax deduction on federal income taxes every year
- Monthly mortgage payments consist of principal and interest
- On a 30 year fixed rate loan, homeowners will most likely pay interest on the first half of their mortgage loan term
- For example, if mortgage payment is $1,500 per month, principal payment can be $50 and mortgage interest payment can be $1,450
The interest portion of monthly mortgage payment is tax deductible and you can claim it as a mortgage interest tax deduction on federal tax returns.
FORM 1098 Provided By Mortgage Companies
- The amount of mortgage interest homeowners have paid for their home during that calendar year
- The mortgage servicing company servicing mortgage loan needs to send homeowners IRS Form 1098 no later than February 1st of each year, mandated by federal law
- The IRS Form 1098 will itemize how much interest and how much principal homeowners have paid the preceding year for housing payment
The IRS Form 1098 interest statement needs to be applied to the Schedule A section, itemized deductions, on the 1040 Internal Revenue Service Tax Return Form online item 10.