If you own your property, you've likely heard you can deduct several of the costs of homeownership for a tax break. One of those deductions is known as the mortgage interest deduction. To that end, we've created a comprehensive guide on this deduction below. Keep reading to learn what it is, how it works, what's covered under the deduction, and what you should know about taking it as a taxpayer. After reading, you should have a much better idea of whether this tax deduction is right for you.
What is the mortgage interest deduction?
The mortgage interest tax deduction allows you to deduct the amount of money you paid in mortgage interest during the tax year from your taxable income. If you currently have mortgage debt on your home or investment property, this tax deduction could mean you're in line for a sizable tax break, especially if you just started paying off your home loan and a good portion of your payment is going toward interest.
Since the passage of the Tax Cuts and Jobs Act, homeowners who bought their primary residence or second home after Dec. 15, 2017, qualify for this deduction for the first $750,000 of mortgage debt. However, if you bought the property before that date, you can deduct interest on up to $1 million of mortgage interest debt.
As noted above, unfortunately, investors can only take this tax deduction if they use their second home as a rental property. If you have a standard investment property, you can still deduct your interest payment as a business expense if you file a Schedule E at the end of the tax year.