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Q&A: What’s the most common home-related tax deduction or credit?

Lazetta Rainey Braxton
by Lazetta Rainey Braxton , NAPFA

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. 

READ: How does home buying affect taxes? 

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.

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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.  

 

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Lazetta Rainey Braxton, CFP, is founder of Financial Fountains, a fee-only financial planning and investment management firm. Braxton is a member of the National Association of Personal Finance Advisors (NAPFA), a fee-only professional association and a Dimespring knowledge partner.