I'm not really that good with financial stuff, but I've got my home. Can I deduct the interest on the mortgage from my taxes?
One of the ways that the government, since 1913, has encouraged home ownership is with the help of the mortgage interest tax deduction. This is an itemized deduction listed on Schedule A of your Form 1040. Beginning with homes bought or built after October 13, 1987, there are limits to how much you can deduct, as well as a phase out of the deduction.
Right now, you can only deduct your mortgage interest on debt up $1 million (total) on first and second homes for those who are married filing jointly. For those married filing separately and those filing single, the limit is $500,000. It’s also possible to deduct the interest on home equity loans of up to $100,000 ($50,000 for those not filing jointly).
On top of the debt limits associated with the mortgage interest tax deduction, there is also a phase out. If you have an adjusted gross income of more than $166,800, your deduction will begin to phase out. For every $100 of income you have above the threshold, you lose $3 (or 3%) of your itemized deduction, multiplied by 33.3%. The maximum loss is 80% of your itemized deductions. If you make $266,800 a year, and pay $15,000 in mortgage interest, you are $100,000 over the threshold and your deduction will be reduced by $3,000 x 33.3%, or $999. Instead of deducting $15,000, you only deduct $14,001.
It’s important to note that there have been various proposals in the past to change the mortgage deduction. Indeed, the formula for figuring the deduction phase out has already been tinkered with in the past. Some suggestions include getting rid of the deduction for those above a certain income (such as $250,000), or eliminating the deduction altogether. While the issue is regularly debated by politicians, a USA Today and Gallup poll published in April 2011 indicates that 61% of Americans are against getting rid of the mortgage interest deduction – even though the Treasury Department believes it could save the government close to $100 billion in 2012.