Can You Deduct Mortgage Interest If You Don't Itemize Deductions?

by Tiffany C. Wright Google

    Mortgage payments to finance the purchase of a home can eat up a large chunk of a homeowner’s income. The IRS makes ownership more affordable by allowing a tax deduction for the mortgage interest portion of a payment. Because the predominant portion of the payment in the early years of conventional 20- and 30-year loans consist primarily of interest, this tax deduction can be sizable. You must itemize on your annual tax filing to take advantage of a mortgage interest deduction.

    Step 1

    Confirm your relevant standard deduction amount for the tax filing year. For the 2011 tax year, for example, the standard deduction was $5,800 for single or married filing separately; $8,500 for head of household; and $11,600 for married filing jointly. This is the amount against which you will compare your mortgage interest to determine whether you should itemize. To get your maximum deduction, most people choose to itemize only if the itemized deductions exceed the standard deduction amount.

    Step 2

    Check your Form 1098, or mortgage interest statement, and the county or municipality property tax receipt, if applicable. Your bank or mortgage servicing company is required by law to mail the 1098 to you by January 31 of the following year. This form clearly specifies the amount you paid in mortgage interest. If you escrow your property taxes and homeowners insurance, the 1098 will also include any real estate property taxes paid on your behalf. If you paid your property taxes directly, the receipt you received when you made the payment will show the payment amount.

    Step 3

    Calculate whether your mortgage deduction amount exceeds the standard deduction amount. The mortgage deduction includes both the deduction for mortgage interest and the deduction for the real estate property taxes that you paid. If you have a sizable mortgage or a high interest rate, your mortgage deduction probably will exceed the standard deduction. If your outstanding mortgage is small or your interest rate is low, the standard deduction might exceed what you paid out in mortgage interest and real estate taxes.

    Step 4

    Figure additional deductions to increase the amount of your itemized deductions. If your mortgage deduction amount nearly matches your allowed standard deduction, consider additional allowed deductions that could increase your total itemized deductions. These include charitable contributions, unreimbursed employee expenses, and interest payments on student loans.

    Step 5

    File your taxes using the total of your itemized deductions if it exceeds the standard deduction. Otherwise, use the standard deduction if your mortgage interest deduction plus additional itemized expenses are less than your standard deduction.

    Tip

    • In addition to your primary residence, you can deduct mortgage interest expense for a vacation home. The amount allowed is dependent on the vacation home's usage and mortgage size. You can also deduct mortgage interest expense for rental property on Schedule C.

    Warning

    • As with all tax-related documentation, save all supporting material for seven years. Seven years is the amount of time the IRS can go back to conduct an audit when no fraud has occurred.

    Photo Credits

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    About the Author

    Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.

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