Mortgage Interest Tax Deduction
By Gustan Cho
There are many benefits of home ownership. Being a homeowner, you do not need permission if you need to paint your walls, put up wallpaper, have as many pets as you can, no restriction on dog size that you can keep, privacy, potential of appreciation, and last but not least, the ability for mortgage interest tax deduction. If you rent an apartment or home, you cannot deduct your rental payments on your income taxes. However, the interest payment on your home is a tax deductible line item on your income taxes. Say you are currently renting a home for $1,500 per month. None of that $1,500 can be deducted on your income taxes. Say you are a homeowner and your housing payment is $1,500 per month but out of that $1,500, $100 is principal and $1,400 is mortgage interest. Your $1,400 mortgage interest payment is deductible on your federal income taxes and that can be a huge savings for you. 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 of you heard that one of the main benefits of owning your own home is that you can write off your mortgage payments. But what does writing off your mortgage payments actually mean?
Whether you are a renter or homeowner, you have a monthly housing payment you either make to your landlord or mortgage company. If you are renting, your monthly rent cannot be used as a writeoff on your tax returns. You cannot claim your monthly rent payments as an expense on your tax returns. However, if you are a homeowner and have a mortgage secured by your home with a mortgage lender, part of your housing payment can be used as a tax deduction on your federal income taxes every year. Your monthly mortgage payments consist of principal and interest. On a 30 year fixed rate loan, you will most likely pay interest on the first half of your mortgage loan term. For example, if your mortgage payment is $1,500 per month, your principal payment can be $50 and your mortgage interest payment can be $1,450. The interest portion of your monthly mortgage payment is tax deductible and you can claim it as a mortgage interest tax deduction on your federal tax returns.