How to Deduct Home Mortgage Loan Interest?
Amount paid as interest towards home mortgage is deductible from taxpayers’ income and thus can substantially reduce their tax burden. Interest paid towards mortgaging the second house is also eligible for deductions.
Here’s how you can calculate the amount:
At the outset, gather all your financial statements and get pen, paper and a financial calculator.
1. Total up all the expenses you can list as deductions but ensure that the final figure is more than standard deduction as applicable in your case. Most of the listed deductions comprise of state taxes, interest on home equity loans, and interest towards mortgage, property taxes plus permissible charitable contributions. The rates for standard deductions are as follows:
For singles——————- $4300.00
For Household heads—— $6,350.00
For couples filing together– $ 7,200.00
For couples filing separately–$3,600.00
In case the sum total of your listed deductions falls below standard deduction as applicable in your case, it is recommended not to make deductions towards interest on home mortgage.
2. Collect a copy of form Schedule A. Fill up all the listed deductions. Section III of the form is for entering interest deductions.
3. In Schedule A, mention the name of Mortgage Company or the bank where you deposited mortgage interest. Also, fill in the total amount that you paid for the year for which you are paying tax.
4. In Schedule A, also include the names of other persons, if any, whom interest was paid towards mortgage loan. Also, include the amount paid over the year for which you are paying tax. It is not obligatory for individuals providing mortgage loans to provide you Form 1098.
5. In the same schedule, add the names of the institutions that provided you loan and the sum paid during year of paying tax in points to avail loan, provided that loan was availed for buying your main house. In case of loans availed for refinancing or for buying a second house, the points need to be subtracted over the span of loan and not in one go. In this case, the form 1098, containing the points that were paid by you, will be given by the lending institution.
6. Keep filling the balance of Schedule A.