TAX CUTS ON MORTGAGE INTEREST

Tax Cuts on Mortgage Interest

Proposed in 1913 together with the income tax, mortgage interest tax deduction is among the highly favored tax slash in the US, especially for homeowners. However, along with your lessened tax burden comes a few requirements you must meet and concepts you should understand in order to qualify for this privilege.

Pre-conditions

This type of interest may only be reduced from an individual provided that he or she meets the following requirements:

• Filing of form 1040, an official IRS document used to organize annual income tax returns

• Itemization of deductions, which refers to an individual’s adjusted gross salary minus the cuts from cash spent on particular product or service within the year

• Legal liability for the loan

• Compensation for an adequate home

Of course, although the above mentioned specifications are regulated by the administration, and are not simple as they seem at first glance. For example, there are two kind of debt that produce tax deductible interest.

First is the acquisition debt, which covers interest on mortgage released to improve, build or purchase a home within the given date of October 13, 1987 onwards. It may only be fully subtracted if the total deficit from all mortgages amounts to $1M or less for married couples and $500,000 or less for singles. The other one, equity debt, pertains to other reasons aside from the previously stated and must sum up to $100,000 or less for married couples and $50,000 or less for singles. Moreover, they must also add up to less than the fair market value of your house excluding all debts after October 13, 1987.

It is also important to remember that following the necessary criteria does not necessarily make you eligible for the deduction, unless you make sure your mortgage is classified as a secured debt.

In terms of what can be categorized as a qualified home, it needs to have the appropriate facilities like your primary residence, or even a condominium. In case of a secondary home, utilization of the property for at least 14 days a year is required while for rental houses, it must be used more than 10% of the time the establishment was rented.

Refinancing?

Back then, refinancing is used when interest rates drop, since it gives you a chance to lessen your monthly fees, and trim down the term of a loan. When this is done without acquiring any additional debt, all interests created from the mortgage remains deductible. Meanwhile, for those who use their houses as a piggy bank, the rules of equity debt is applicable.