We here at LoanSafe.org are asked all the time about mortgage interest and whether or not it can be claimed. In this article we will go over the facts about mortgage interest and who will qualify for this deduction.

What counts as mortgage interest?

Mortgage interest is any interest you pay on a loan secured by a main home or second home. These loans include:

* A mortgage to buy your home
* A second mortgage
* A line of credit
* A home equity loan

If the loan is not a secured debt on your home, it is considered a personal loan, and the interest you pay usually isn’t deductible. Your home mortgage must be secured by your main home or a second home. You can’t deduct interest on a loan for a third home, a fourth home, etc.

Who gets the deduction?

You do, if you are the primary borrower and legally obligated to repay the amount borrowed. If you are married, and both you and your spouse signed for the mortgage, then both of you are borrowers. However, if you pay a family member or a friend’s mortgage to help them out, you cannot deduct the interest unless you are attached to the loan.

Is there a limit to the amount I can deduct?

Yes, your deduction is generally limited if all mortgages used to buy, construct, or improve your first home (and second home if applicable) total more than $1 million ($500,000 if you use married filing separately status). You can also generally deduct interest on home equity debt of up to $100,000 ($50,000 if you’re married and file separately) regardless of how you use the loan proceeds.

For details, see IRS Publication 936=

Fully deductible interest:

In most cases, you can deduct all of your home mortgage interest.  How much you can deduct depends on the date  of the mortgage, the amount of the mortgage,  and how you use the mortgage proceeds.

If all of your mortgages fit into one or more of the following three categories at all times during  the year, you can deduct all of the interest on those mortgages. (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category.) If one or more of your mortgages does not fit into any of these categories, use Part Visit II of this publication to figure the amount of interest you can deduct.

The three categories are as follows.

1. Mortgages you took out on or before October 13, 1987 (called grandfathered debt).

2. Mortgages you took out after October 13 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2009 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).

3. Mortgages you took out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout 2009 these mortgages totaled $100,000 or less ($50,000 or less if married filing separately) and totaled no more than the fair market value of your home reduced by (1) and (2).

The dollar limits for the second and third category apply to the combined mortgages on your main home and second home.

Can unsecured debt be deducted?

No. Only secured debt can be deducted through your home’s mortgage interest. a secured debt is one which you agree to and sign an agreement (such as a mortgage, deed of trust or land contract) that:

– Makes the property collateral for the debt to ensure it is repaid in full
– Uses the property to satisfy the debt in the event of the borrower defaulting

In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt.

How to Report

Deduct the home mortgage interest and points reported to you on Form 1098 on Schedule A (Form 1040), line 10. If you have paid more deductible interest to the lender than the amount listed on Form 1098, show the bigger amount on line 10. You will want to attach a letter explaining why the amount vary and print next to line 10.

Deduct home mortgage interest that was not reported to you on Form 1098 on Schedule A (Form 1040), line 11. If you paid home mortgage interest to the person from whom you bought the home, show that individuals name, address, and taxpayer ID number (TIN) on the dotted lines next to line 11. You and the seller both must give each other your TIN numbers. A W-9, Request for Taxpayer ID Number and Certification, can be used for this purpose. Failing to meet these requirements can result in a fifty dollar fine for each mistake. The TIN can be a social security number, a taxpayer id number (provided by the IRS), or an employer ID number.

If you can take a deduction of points that were not recorded on Form 1098, you can deduct those points on Schedule A (Form 1040) line 12. Deduct mortgage insurance premiums on on Schedule A (Form 1040) line 13.

Find out more about reporting mortgage interest from the IRS.

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.