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What Is a Mortgage Interest Rate Deduction?

Money Girl answers a reader question about mortgage interest rate deduction.

By
Laura Adams, MBA,
February 29, 2012

Reader Shaz wants to know:

What is a mortgage interest deduction and am I required to include it on my tax return?

ANSWER: The mortgage interest deduction is a tax benefit that's offered to encourage homeownership.

Click here to watch my Mortgage Interest Deduction VIDEO!

No taxpayer is required to claim a tax deduction or credit that they're entitled to. However, when a benefit can reduce your tax bill and save you money, it's certainly wise to take it! The mortgage interest deduction is one of the best money-saving tax breaks out there.

Who Qualifies for the Mortgage Interest Deduction?

The interest you pay on a mortgage or a home equity line of credit (HELOC) for your primary residence or a second home can be deducted from your income when the following 2 conditions are met:

  1. You file taxes on Form 1040 and itemize deductions on Schedule A.
  2. The mortgage is a secured debt on a qualified home in which you have an ownership interest.

When Should You Itemize Deductions?

Each taxpayer is entitled to a standard deduction amount for 2012 that depends on your tax filing status as follows:
  • Single: $5,950
  • Married Filing Separately: $5,950
  • Head of Household: $8,700
  • Married Filing Jointly: $11,900
If your total deductions--for qualified expenses such as mortgage interest, charitable contributions, state taxes, and a percentage of your medical expenses--exceed the amount of your standard deduction, you'll come out ahead by itemizing.

What Expenses are Tax Deductible?

For a complete list of deductible expenses, be sure to review the updated version of Schedule A each tax year.
 
Itemizing does require a little extra effort because you need to keep up with deductible expenses throughout the year. However, it can really pay off!

Get Answers to FAQ on the Mortgage Interest Deduction

To learn more, be sure to watch a short video about claiming the mortgage interest deduction where I explain it in greater detail and give you answers to 6 frequently asked questions.

Click here to watch my Mortgage Interest Deduction VIDEO!

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