How the Mortgage Interest Tax Deduction Works

How to Claim a Mortgage Interest Tax Deduction

The IRS has lots of rules and guidelines to claiming the mortgage interest tax deduction. We'll outline the basics here. You can deduct the interest on your mortgage on up to 1 million dollars of your home mortgage debt (or up to $500,000 if you're married and filing separately). Additionally, you can deduct the interest on up to $100,000 of home equity debt. To take the mortgage tax deduction, you must meet the following conditions:

  1. File your taxes on IRS Form 1040, and itemize your deductions on Schedule A (Itemized Deductions).
  2. Have a secured loan with an ownership interest on a qualified home.
  3. Be legally liable for the home -- you cannot claim a tax deduction if, for example, you are making payments for someone else's home loan.

The IRS provides a workbook to help you figure out if you are qualified for a mortgage tax deduction.

Each year there's a standard deduction amount (which varies depending on whether you're married or single, filing jointly, or filing as head of household). So you'll need to decide whether itemizing your deductions or taking the standard deduction saves you the most money.

If you do decide to itemize, ensure you don't make some common mistakes when claiming your mortgage tax deduction.

If there are multiple borrowers on your loan, sometimes only one borrower receives Form 1098, the mortgage interest statement sent out by your mortgage lender. You are both eligible to claim the deduction on your taxes, but only the amount you each paid during the year.

If you are married, ensure you claim the mortgage tax deduction correctly. If you and your spouse own your home together and file taxes jointly, you can claim the total amount of the mortgage tax deduction on the return. But if you're married and file separately -- or own the home with someone you're not married to -- you can only claim the portion of the mortgage you paid during the year.

The mortgage tax deduction is not without controversy. Read on to find out the debate among lawmakers and financial experts about this deduction.