- Millions of taxpayers are claiming extended standard deductions rather than listing amortizations like mortgage interest deductions individually.
- For new mortgages issued after December 15, 2017, taxpayers can deduct interest on the debt of the first and second homes totaling $ 750,000.
- Homeowners who own an existing mortgage before December 15, 2017 can deduct interest on a total of $ 1 million in debt for the first and second homes.
- Homeowners can also deduct interest by refinancing a mortgage of up to $ 1 million that existed on December 15, 2017, but in many cases the new loan will exceed the amount of the refinancing mortgage. I can not do it.
- HELOC interest deductions are prohibited unless the funds are used for certain types of home renovations.
Less than half of filers who received a mortgage interest deduction in 2017 did so in 2019. This is partly because the 2017 tax reforms directly and indirectly curtailed mortgage interest deductions. These changes will expire at the end of 2025.
The main reason for the change is that millions of filers are claiming an increase in the standard deduction, rather than listing the depreciation individually on Schedule A. For example, if a couple’s mortgage interest, state taxes, and charitable donations total $ 22,000 in 2020 or 2021. In both years, there is no benefit to itemizing the deduction items for Schedule A. This is because the standard deduction is $ 24,800 in 2020 and $ 25,100 in 2021.
In addition, Congress has imposed new limits on the amount of mortgage debt that new buyers can deduct interest on.
In conclusion, IRS data and the Tax Policy Center estimates that about 15 million filers deducted mortgage interest in 2019, compared to about 34 million in 2017. There is sex.
Eligible Mortgage Debt Limits
The restrictions apply to taxpayers who receive a mortgage interest deduction, but are more generous to homeowners with older mortgages.
For new mortgages issued after December 15, 2017, taxpayers can deduct interest on the debt of the first and second homes totaling $ 750,000. However, homeowners who own an existing mortgage before that date can deduct interest on a total of $ 1 million in debt for the first and second homes. These limits are not indicators of inflation.
Here is an example: As of December 15, 2017, John had a $ 750,000 mortgage in his first home and a $ 200,000 mortgage in his second home, so he can continue to deduct both interests on Schedule A. .. I bought a mortgage of $ 750,000 in 2015 and a villa with a mortgage of $ 200,000 in 2020, so I can’t deduct the interest on the second loan.
Homeowners can also deduct interest by refinancing a mortgage of up to $ 1 million that existed on December 15, 2017, but in many cases the new loan will exceed the amount of the refinancing mortgage. I can not do it.
The following is an example provided by Evan Liddiard, a Certified Accountant of the National Association of Real Estate Agents. If Linda has a $ 1 million mortgage and repays up to $ 800,000, she can refinance up to $ 800,000 in debt and continue to deduct interest. According to the NAR, if she refinances for $ 900,000 and uses $ 100,000 in cash to significantly improve her home, she can also deduct $ 900,000 in interest.
But if Linda refinances for $ 900,000 and simply has $ 100,000 in cash in her pocket, she can deduct interest for just $ 800,000 in refinancing.
Home Equity Loans and Credit Lines (HELOC)
The law currently prohibits interest deductions for such debt unless the funds are used for certain types of home renovations. Prior to 2018, homeowners could deduct interest on up to $ 100,000 in mortgage debt used for all purposes.
To be eligible for the deduction, you must use borrowing to “buy, build, or significantly improve” your first or second home. Borrowing must also be secured by the house to which it applies, so you cannot use Heloc in the first house to buy or expand a second house.
See IRS Publications 936 and 523 for details and a list of improvements covered.
This year’s tax deadline for individuals is May 17th. Want to know more before filing a tax return? Register for free and download a free copy Of the WSJ Tax Guide 2021.
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Mortgage Interest Deduction: Who Get It?
Source link Mortgage Interest Deduction: Who Get It?