Homeowners: Mortgage Interest, Real Estate Taxes Are Deductible

Related To:

Which season is the best time to be a homeowner? Tax season! Along with the freedom to paint and remodel, tax breaks are one of the many perks of homeownership.

The bad news? Unless you choose to take the standard deduction, your days of "EZ" tax returns are over. You'll need to pick up the 1040 long form and itemize your deductions on Schedule A. Get IRS forms here.

Most state and local governments charge property taxes, which are an annual tax on the value of your property. You can deduct all of the real estate taxes that you pay.

There is some good news about those monthly mortgage bills: A part of the soul-crushing sum can be deducted on your tax return. For most homeowners, the bulk of each payment goes towards interest. That interest is tax deductible, up to a total of $1 million ($500,000 if you are married filing separately) on loans taken out to buy, build or substantially improve a principal residence and a second home. Any type of home is eligible: a mobile home, house, condo or even a houseboat.

In order to deduct mortgage interest on your second home, you must stay there at least 14 days a year or more than 10 percent of the days it is rented during a year. If you don't meet this requirement, it is considered a rental property rather than a second home.

Also, other rules apply if you rent out space in your primary residence.

"Talk to a tax professional. You have to report the income because that is business use of the home as well as residential," explains Alison Flores, a research analyst at the H&R Block Tax Institute.

You can also deduct interest on home equity loans of less than $100,000 ($50,000 if single or married filing separately), as long as the first and second mortgages total less than the value of your home.

EXAMPLE: You take out a $40,000 home equity loan to pay for your son's college tuition. Your home is worth $100,000, and you owe $70,000. You can deduct the interest on $30,000 dollars of the loan, but you're on your own for the remaining $10,000.

If you deduct enough mortgage interest to get a tax refund, you'll need to claim that money as income in the year you receive it.

Always consult your tax advisor. For more information, read IRS Publication 936.

Keep Reading

Next Up

Building Mortgage Interest: More Tax Deductions and Incentives for Homeowners

Learn about the many tax advantages of homeownership, including special deductions and local incentives.

Tax Benefits for Real Estate Investors

A long-term investment strategy will keep your taxes to a minimum.

Tax Breaks for Homeowners

A huge benefit of being a homeowner is the ability to take advantage of a number of tax breaks. Check out the possibilities.

Home Inspections & Homeowners Insurance

Be smart when it comes to safety and savings.

Homeowner's Insurance for Condo Owners

Unlike owning a home, when you buy a condo your homeowner’s insurance policy doesn't cover your belongings. Here's how to protect your personal property.

Immediate Expenses for New Homeowners to Expect

You know you've got a mortgage. But make sure to budget these costs in as well.

How to Be a Financially Savvy Homeowner

Many property-related actions trigger a tax or tax benefit.

The 5 Most Common Questions From New Homeowners

If you're a new homeowner, you likely have questions about budgeting for your new expenses, adding value to your home and handling post-purchase surprises and challenges. Here, the answers!

Homeowner Tax Tip: How to Take More Money Home

The tax advantages of homeownership can help you bring home more money every month and afford a larger mortgage (read: better house) than you may think.

Mortgage Interest Deduction: Homeowners' Biggest Tax Perk

Here, how the mortgage interest deduction helps improve your bottom line.

On TV

Follow Us Everywhere

Join the party! Don't miss HGTV in your favorite social media feeds.