when can I deduct on interest?

Guest 0.10 Dollars($)

I have heard experts suggesting that a deduction on mortgage interest is the main reason why most people go for home buying other than renting. But a friend of mine informed the deduction is not always applicable. Is it true? Under what conditions can I deduct?

Caron

Hi Aaron,

You have heard correctly. Not every homeowner gets to deduct taxes on mortgage interest.

In order to deduct the mortgage interest on your tax returns, you will have to itemize the deductions. The total deduction must exceed the standard deduction allowed by the Federal government. Only then can you deduct the interest on taxes.

For the year 2006, the standard deduction allowed for single taxpayers is $5, 150, and for the head of household tax filers, it is $7, 550. For married couples filing jointly for tax returns, the standard deduction is $10, 300.

If we consider the cost of homes nowadays, tax payers usually get the chance to exceed the standard deduction when they add the property taxes and other deductions. But in certain cases, they may not be able to do so. For instance, if a buyer gets a home late in the year, he may not have made enough mortgage payments such that the deductions on the interest paid may exceed the standard deduction amount.

Thanks,

Caron.

Jessica

Hi Aaron,

I would like to add something to what Caron has mentioned about tax deductions.

The mortgage interest tax deductions do not last forever. The longer you occupy the property, the more you pay towards the principal loan amount rather than towards the interest. So, after a certain number of years, the deductions on interest will not be enough to exceed the standard deduction.

Regards,

Jessica.

All times are GMT - 7 Hours

Page 1 of 1