If you’re a homeowner who feels left out of the recent stimulus bills, don’t despair.
There is more to the home mortgage interest deduction than meets the eye. Most homeowners know that interest payments on their primary mortgage are deductible, but did you know that the deduction may also apply to a second mortgage, a line of credit or a home equity loan?
If, like many homeowners, you have two mortgages, make sure that you take deductions for interest on both of them.
You can even take a deduction for the interest on a second home. If you are lucky enough to have a summer cabin in Maine, let the IRS know. Your second home can even be a trailer or boat, just as long as you can sleep, cook, shower, shave and… well, you get the picture. The home mortgage interest deduction applies for up to $1 million in primary mortgages and up to $100,000 of home equity loans.
Keep in mind that the deduction is not limited strictly to interest. According to IRS Publication 936, which contains a ton of useful information, late charges are also deductible. In addition, points on your mortgages may be deducted over the life of your loan. And if you hit the jackpot and decide to pay your loan off early, don’t forget to deduct your prepayment penalty. All of these things are treated like interest on your tax return and can put some dough back into your pockets.
As always, there are rules to keep in mind. If you have a second home, and you rent it to other people, you may need to divide your interest between your home and your rental activities. Likewise, if you have a home office, you should divide your interest between your home and your business.
Keeping your house in good working order is taxing enough. Don’t let your mortgage obligations make it more so. Instead, take full advantage of the home mortgage interest deduction, and check back with us later for more tax tips about how to make the most out of your home office or your rental property.
Be sure to check out the complete archive of Daily Deductions!