Deducting your mortgage interest for 2022

A tax deduction is an amount of money you subtract from your annual taxable income, lowering the amount of taxes you owe.

For instance: Say you make $50,000 and owe 20% in taxes. That means you owe $10,000 in taxes. But if you can deduct $5,000 from your income, now you owe 20% of $45,000, or $9,000. That $5,000 deduction saves you $1,000 at tax time.

According to the IRS: Generally, home mortgage interest is any interest you pay on a loan secured by your main home or a second home. The loan may be a mortgage to buy your home or a second mortgage.^Footnote1

Here are the basic conditions for what qualifies as deductible mortgage interest:^Footnote1

• Your property must be a house, condo, co-op, mobile home, boat or similar property that has sleeping, cooking and toilet facilities.
• Your home has to be collateral for the mortgage loan.
• Your main home is the one where you ordinarily live most of the year.
• If you rent out your second home, you have to be there for at least 14 days per year, or more than 10% of the number of days you rented it out, whichever is longer.
• Interest on a home equity loan, up to $100,000 (for married filing jointly), can only be deducted if you use the funds to buy, build or substantially improve the home that it's borrowed against.

You have to itemize your deductions - as opposed to taking the standard deduction - to deduct your mortgage interest from your taxes.

For a more complete picture of mortgage interest deductions, consult your tax advisor or refer to IRS Publication 936.^Footnote1

That depends on when you took out your mortgage:

• If you took out your mortgage on or before October 13, 1987, there is no limit on the amount of mortgage interest you can deduct from your taxes.
• If you took out your mortgage after October 13, 1987, and before December 16, 2017, you can deduct mortgage interest on up to $1 million.
• If you took out your mortgage after December 16, 2017, you can deduct mortgage interest on up to $750,000.
• If you're married and filing separately, the limits in the second and third examples above should be cut in half.

• If you're having a home built, you can deduct the mortgage interest on that property while it's under construction for up to 24 months - but you have to move into the home once it's ready for occupancy. The 24-month period can start any time after construction begins.
• You can deduct a late payment charge on your mortgage payment if it wasn't for a specific service performed in connection with your mortgage loan.
• If you pay off your mortgage early, you may pay a penalty. You can deduct that penalty as mortgage interest if it wasn't for a specific cost incurred or service performed in connection with your mortgage loan.

• If you bought your home in the last year, there are closing costs you can deduct, including property taxes, loan points, origination fees and mortgage insurance premiums.^Footnote2
• If you sold your home in the last year, based on an IRS capital gains tax exclusion, you may be exempt from paying taxes on the first $250,000 of profit if you're single ($500,000 if married and filing jointly).^Footnote3