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Probably the most common deduction on U.S. tax returns are home mortgage interest deductions. Home loan interest, along with interest paid on loans used to invest, is deductible if you itemize.
Personal loan interest, which is accumulated by credit card debt or other consumer debt, is not deductible.
All types of home loans are deductible
The permissible home mortgage interest payments that can count toward your mortgage interest tax deduction can either be for a mortgage on your primary or secondary residence, a line of credit, or a home equity loan.
The only conditions that must be met for the interest payments to included in your mortgage interest tax deduction, is that you must be liable for repayment of the loan and the collateral for the loan must be your home.
You should receive Form 1098, the official mortgage interest statement, from your mortgage lender by the end of January. This statement will show your total mortgage interest and your total paid mortgage points. Tax deduction for both of these items is available.
If you are filing a paper tax return, you will need to fill out Schedule A, Form 1040 and include it with your return. All itemized tax deductions, including mortgage interest tax deductions, are claimed on this form.
Note: If you have not paid more than $600 in interest during the year, you may not receive Form 1098. In this case, you should enter the lender's name, address, and identification number in the appropriate box during the e-filing interview.
Some things that you should be aware of
There are, as with every other deduction, some limitations that apply to the home mortgage interest tax deduction.
Mortgage interest deductions vary based on the date of the loan, the use of the loan, and the amount of the loan. Each type of loan has different sets of rules - one type can be used for home improvement and still be deducted while another one cannot. It all depends on the kind of loan you have.
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You can get more information about the home mortgage interest tax deduction directly from the IRS, in the form of IRS Publication 936 (it's lots of fun.)
If you file a paper tax return, you will need to attach Schedule A with your return. If you e-file, any mortgage interest tax deductions will be calculated and the mortgage interest tax deduction form will be completed for you.
Note: you will need an Adobe Acrobat Reader to view these publications, which you can get here. (But you probably already have it.)
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