Home Mortgage credit Essay

Submitted By holland17
Words: 423
Pages: 2

Mortgage Interest Deduction
The mortgage interest deduction is a common itemized deduction that allows homeowners to deduct interest they pay on a loan used to build, purchase, or make improvements on their principal residence. This deduction can also be used on loans for second residences and vacation residences with certain limitations. According code sec. 163(h)(3), a “qualified residence” means any interest which is paid or accrued during the taxable year on acquisition indebtedness or home equity indebtedness. In most cases interest paid on a home mortgage is fully deductible, but there are limitations. Limitations on interest paid or accrued during the tax year for acquisition indebtedness includes a $1,000,000 limitation or $500,000 for married individual filing a separate return. For home equity loans, interest is deductible only on the portion of the loan that does not exceed the lesser of the fair market value of the qualified residence reduced by the acquisition indebtedness, or $100,000 or $50,000 for married individuals filing separate.
The mortgage interest tax deduction is perhaps the most misunderstood aspect of homeownership. Number one misconception is that every homeowner gets a tax break and the second is that every dollar paid in mortgage interest results in dollar-for-dollar reduction in income tax liability. First owners must itemize their deductions when determining tax liability. Itemizeing provides an opportunity to account for specific expenses, including mortgage interest, medical expenses, and property taxes. Mortgage interest is often one of the largest expenses taxpayers face and deducting it is oftencited as a financial incentitive to buy a home. As appealing as this is taxpayers…