One of the biggest tax deductions most taxpayers will qualify for is the interest paid on their mortgage.
Mortgage interest is tax deductible. Up to 100 percent of mortgage interest paid during the tax year can be deducted on your income taxes as long as your total mortgage balance is less than $1 million. In other words, unless you have more than $1 million in mortgage loans, you can deduct all of your mortgage interest.
Is Mortgage Interest an Itemized Deduction?
Mortgage interest is an itemized deduction. In fact, for the majority of taxpayers who get most of their income form a regular job at a company where you have taxes withheld from your paycheck based on your W2 form, the mortgage interest you pay determines whether or not you should itemize your taxes or file with the standard tax deduction. For business owners filing a Schedule C or those with a large amount of investment or interest income, that will not apply.
How To Decide Whether to Take the Standard Deduction or Itemize
The standard deduction for 2010 is $5,700 for single filers and $11,400 for married filing joint taxpayers. If the amount of mortgage interest reported on Form 1098 is close to, or above that number, then you should itemize your tax deductions. If the mortgage interest paid is significantly less than the standard deduction, then chances are that you won’t have more itemized tax deductions than the standard amount.
The exception is if you have significant other deductible expenses such as charitable donations or medical expenses (above 7.5 percent of your income). You can do an estimate of whether you should itemize or not by taking the standard deduction amount and subtracting your mortgage interest and real estate taxes reported by your lender or mortgage company on Form 1098. The amount remaining is how much you have to deduct to make itemizing worth it. Don’t count IRA contributions, moving expenses, or student loan interest, all of which can be deducted without itemizing. Whatever amount is left is how much you have to find by itemizing to make beat the standard deduction.
How To Deduct Mortgage Interest on Tax Forms
When you file your income taxes, the main form you use is Form 1040. If you itemize tax deduction, then you file Schedule A for Form 1040.
Where you deduct mortgage interest on taxes is on Schedule A. The entire amount of interest paid on your mortgage that is reported by your lender or bank on Form 1098 is entered on Line 10 of Schedule A.
Any amount of real estate loan interest that is deductible but not reported on a Form 1098 is entered on Line 11 of Schedule A.
Note that if you pay your January mortgage payment early as a way to do some end of year tax planning, your mortgage company may not include that amount on your Form 1098. Be sure to add up your mortgage interest payments for the year yourself. If that payment is not included on the 2010 Form 1098 you receive, include it on Line 11. Be sure not to double count the payment on your 2011 taxes if your mortgage lender includes the amount on next year’s 1098 Form!
Tags: 2010 taxes, form 1040, itemized deductions, Mortgage, mortgage interest, schedule a, Tax Deductions, Taxes
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