The mortgage interest deduction allows you to write off the mortgage interest on up to $1.1 million of mortgage debt as long as you itemize your deductions. Depending on the amount of other income you have, you can still claim some or all of the deduction on your taxes, but if you're not working, the value of the deduction might be limited.
Mortgage Deduction Eligibility
As long as you qualify to take the home mortgage interest deduction, you can claim the write-off -- and working is not one of the requirements. To qualify for the deduction, you must pay interest during the calendar year on your mortgage for either your primary home or second house. If you're claiming interest on a second home, you can always claim the deduction if you don't rent it out -- whether or not you actually stay there yourself. If you do rent it out, you must use the home yourself for 14 days or 10 percent of the time you rented it, whichever is longer.
Just because you didn't work doesn't mean you don't have any taxable income. For example, any interest or profits from selling stocks during the year adds to your total taxable income for the year. As a result, even though you didn't work, the mortgage interest deduction might still benefit you. For example, suppose you have a $15,000 mortgage interest deduction and $35,000 in interest and other income. By claiming the mortgage interest deduction, you can reduce that other income to just $20,000.
Even though you can reduce your other taxable income with the mortgage interest deduction, you can't drop it below zero or get a tax credit because of the excess. So, depending on your circumstances, some or all of your mortgage interest deduction might go to waste. For example, say you don't have any other income during the year except $1,000 of interest on your bank accounts. If you paid $15,000 in mortgage interest, that $1,000 is wiped out, but the remaining $14,000 of the mortgage deduction won't help you on your taxes.
Claiming the Deduction
At the end of the year, your lender should send you a Form 1098 telling you how much you paid in mortgage interest. Claiming the mortgage interest deduction requires filing Schedule A and Form 1040. On Schedule A, the deduction goes on line 10 if you received a 1098. If you didn't, it goes on line 11 and, if you're paying the interest to the person you bought the home from, you also have to report that person's name, address and Social Security number.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."