How to Calculate Your Mortgage Interest Tax Deduction
When tax time rolls around, be sure you're getting every deduction you deserve. You have a choice between taking the standard IRS deduction or itemizing your deductions, which means that you do a breakdown of your deductions on a special form (Schedule A). Anyone who owns a home and pays mortgage interest should itemize, because the total amount of itemized deductions could very well exceed the standard deduction due to the high cost of mortgage interest (at least in the first few years of home ownership).
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Instructions
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Add the monthly interest that you paid to your mortgage company (or companies) during the previous year (also called the tax year). You can find this out by looking at your mortgage statements for the entire year, online or printed, or by waiting for your mortgage company to send you your yearly 1098 form in the mail. The 1098 lists the total interest you paid for the whole year. Your mortgage company should be able to tell you this information over the phone as well. (Schedule A, line 10.)
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Determine any mortgage points you paid in that tax year. Points would most likely apply if you just purchased the house or if you refinanced your existing home loan in that tax year. Points are usually paid in exchange for a lower interest rate on the loan. (Schedule A, lines 10 through 12.)
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Add in any mortgage insurance premiums you paid (also called PMI or prepaid mortgage insurance). PMI is usually paid when the borrower doesn't have at least 20 percent cash to put down on the property. The IRS categorizes this under interest. (Schedule A, line 13.)
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Include investment interest related to a mortgage loan in your mortgage interest deductions. Investment interest is for a property that you use for investment purposes. (Schedule A, line 14.)
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Total everything to get your mortgage interest tax deduction for the year, and place it on line 15 of Schedule A.
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Tips & Warnings
A home counts as anything that you can live in or on that has a kitchen, bathroom and sleeping space, including a house, condo, mobile home or boat. Your home mortgage interest deduction might be limited if you purchased your home after October of 1987. See the Schedule A instructions (in Resources below) for more details. You cannot deduct personal interest paid (unrelated to your mortgage) on your Schedule A.
