The question asked of most Certified Public Accountants at the end of each tax year is ‘Can I claim interest paid on my mortgage?’ A mortgage is a money that an individual who is buying a home will borrow from some sort of lending company or other financial institution. Lenders will charge interest on the amount of the loan according to the prevailing industry rate. The interest paid on the mortgage can be substantial and the Internal Revenue Service (IRS) allows this type of interest to be an allowable deduction on personal income tax returns. There are rules written by the IRS that determine eligibility to claim the deduction.
One of the first terms in qualifying to claim the deduction is that the home must be where you live for most of the year. This is called your primary residence. If the value of the home is the security for the note you will be allowed to claim the deduction under IRS rules for the amount of interest paid. The IRS rules state about qualification for a tax deduction, ‘home can be in any form such as a house, cooperative, condominium, mobile home, boat, other recreational vehicle or similar property that has sleeping, cooking and toilet facilities.’ In this case, you can claim interest paid on your mortgage.
If you have a second place of residence you can claim the interest paid on that loan as well on your personal income tax return as a tax deduction. According to the IRS, ‘you can treat a home under construction as a qualified home for a period of up to 24 months.’ If you have more than two residences you will not be able to use more than two qualified tax deductions. There are other limitations on the tax deductions that can be claimed.
Homes the owner rents can qualify for tax deductions under certain conditions. You can claim interest paid on your mortgage for a second home if you meet the standards of the IRS for the legitimacy of the deduction. The IRS says, ‘You must use a residence more than 14 days or for an amount of time that is more than 10 percent of the number of days during the year that it is rented.’ If you meet the criteria the IRS sets you will be able to claim the deduction.
You must have very accurate records in order to deduct these amounts paid on your house loan on your personal income tax return. Turbo Tax suggests that you make copies of Form 1098 which is the statement that the lending company must provide you with at the end of each tax year that tells you the amount of interest that you paid over the course of the tax year. The IRS states, ‘you can treat amounts you paid during 2010 for qualified mortgage insurance as home mortgage interest.’ If you are a homeowner you may have paid for insurance when you purchased your home. This is insurance that the lender requires the borrower to carry to protect the interests of the lender when there is not a large enough down payment made. In all the cases discussed above, you will be able to answer the question, yes, you can claim interest paid on your mortgage on your personal income tax return in the year that you paid it and that you are filing the return for.