Mortgage Interest Deduction, Limit & Phase Out

The mortgage interest tax deduction provides homeowners the ability to deduct the interest they paid on their mortgage(s) from their taxable income they earned for the tax year in question. Your primary residence isn’t the only mortgage interest deduction you can take advantage of. If you have a mortgaged second home, that interest paid over the course of a year for that mortgage can be deducted as well.

Countries such as the United State, Netherlands, and Switzerland are the only developed countries that offer a full interest deduction. Ireland, Sweden and Belgium offer a mortgage interest tax deduction, but only a small fraction.

There are many opinions on whether the tax deduction positively or negatively affects the United States economy. It has been argued that the deduction gives an incentive to purchase a home, which in return fuels the economy. While the opposition argues that the deduction artificially inflates home prices. In my opinion, regardless if the tax deduction positively or negatively affects our economy, if the deduction was taken away, home prices would plummet at least 15% percent.

Mortgage Interest Deduction Limit

There are two different types of mortgage debt called Home Acquisition Debt and Home Equity Debt:

Home Acquisition Debt: The IRS states that the most mortgage interest you can write off for Home Acquisition Debt is $1,000,000 and this goes for the first and the second homes as long as it’s used to acquire, construct, or substantially improve a home.

Home Equity Debt: You may also deduct up to $100,000 on your second mortgage as well, which is called Home Equity Debt as long as it’s NOT used to acquire, construct, or substantially improve a qualified home. However, you may not deduct over $100,000 for each mortgaged property that you own. In other words, even if you own multiple residences, you still can only deduct up to $100,000 per year.

Mortgage Interest Deduction Phase Out

If you gross more than $166,000, your mortgage interest deduction begins to get phased out Every $100 you earn over $166,800, you will lose three dollars of itemized deductions, or 33.3% up to a maximum loss of 80% of your itemized deductions.

Author: Scott Skyles

Since 1995, Scott has been involved with over $1 Billion in mortgage fundings and is recognized as an expert in residential mortgage lending. Scott is licensed and able to originate mortgage loans in all 50 states. You may follow Scott on your favorite social networks: Facebook | Google+ | Twitter

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