The mortgage interest deduction (MID) ranks high on the list of tax deductions for many home owners. Interest paid on mortgages for a primary residence and a secondary home can be a hefty sum. IRS Form 1098 shows how much you can potentially claim as a deduction. Mortgage interest only can be claimed on loans valued up to $1,000,000 ($500,000 or less if married filing separately). If your mortgages exceed the limit, you must calculate the allowable deduction.
Points also qualify as a MID. Points are deductible in the tax year paid to secure a mortgage. Points paid for refinancing a loan must be deducted over the life of the loan.
Another MID is interest on home equity loans. Loans used for non-home related expenses must be the lesser of $100,000 ($50,000 if married filing separately) or the fair market value of your home less outstanding mortgages. Key point: If your home equity debt is greater than the equity in your home, you cannot claim the interest paid.