Tax Law Changes: Mortgage

If you are a property owner, don’t forget to take advantage of valuable tax savings on your 2011 federal return. Mortgage interest paid on both primary and secondary home mortgages may be fully deductible.

There are two kinds of home mortgage debt; acquisition debt and home equity debt. Acquisition debt refers to the funds used to build, purchase or improve a property. A home equity loan refers to funds used for virtually all other purposes, including home improvements, college funding costs or even debt reduction.

Mortgage Interest Deduction- Eligibility

For married filers filing jointly, interest paid on a loan with a value up to $1 million may be deducted. For married filers filing separately, interest paid on a loan with a value up to $500,000 is eligible. With regard to home equity loans, all interest up to a loan value of $100,000 is eligible for deduction, assuming the filers meet eligibility requirements.

To determine your eligibility, subtract the total amount of acquisition debt from the market value of your home, resulting in a figure that represents your home’s equity. If this amount is less than the interest paid, it’s fully deductible. If this amount exceeds the interest paid, the amount is only partially deductible. Keep in mind that there are maximum limitations on the amount eligible to deduct.

Other Home Deductions

Points, which represent interest paid up front for the purchase of a property, may be deductible. Typically, one point represents 1% of the loan’s original value. If points were paid on the acquisition of your primary residence, they can be deductible during the year in which they were paid if you meet eligibility requirements. If the points were paid to acquire a secondary property, they must be deducted over the lifetime of the loan.

PMI, or private mortgage insurance, may also be deductible. This cost is eligible for deduction if the policy was issued post 2006, is associated with acquisition debt and if the filer’s joint earned income is less than $109,000 annually.









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