Buying a home is one of the most important decisions you must make in your life and getting a loan to support you seems to be the most appropriate idea. It is hard for someone to save enough money for a new home. In the end, it might take a few decades.
Therefore, the loan implies getting the home and making the payments later. The interest rates are some of the first things to take in consideration before asking for a loan, but a few people know that they can now reduce the expenses by claiming a mortgage interest deduction. But in order to make such claims, there are some rules you need to follow. There are some limitations, restrictions, requirements and conditions.
Are you eligible?
The whole process begins with your expenses. They must be itemized as deductions, only to reach to the first requirement – all the deductions must be higher in value than the standard one. If you don't know what to add, think about the state taxes, but also the local ones. Don't forget about the interests you paid for the mortgage, the taxes for the property or properties you own, not to mention about charitable expenses as well, including donations.
In order to come up with a proper calculation, you need some education first, but also some numbers. For instance, the general deduction is $4,300 if you are single, as well as $7,200 if you are married and you complete the form with your partner. When you do it independently, you will get half of that. The deduction is $6,350 if you are marked as the head of the home. The final number must be higher than the standard deduction, otherwise, it is just not worth and definitely not advisable.
Completing Schedule A
The bureaucratic process is very obvious when dealing with the IRS, therefore, you need to begin your venture with Schedule A, a form you can download from the official website. The form is supposed to be completed very carefully. This is essential to inform the IRS about your itemized deductions. Most importantly, the third section of this form is specifically designed for these numbers. If you are not sure how to complete the form, don't hesitate to seek help from a lawyer, although the procedures are not too sophisticated.
As you begin completing the form, you are asked to write down the name of the lending company, mortgage company or bank you have paid the mortgage interest to. You must also include the precise payment, so double check everything you have paid.
It is very important to know that you must calculate per tax year and not per calendar year. Since your numbers are not that relevant, you must seek help from the respective institution, therefore, ask for a complete Form 1098. You can also double check the result and confront it with your calculations.
Schedule A is supposed to include the names of other institutions or individuals you have paid a mortgage interest to, as well as the amount of money. Unlike the lending institutions, the individuals who make such loans are not obliged by the laws to send you Form 1098. Therefore, when you encounter this situation, your calculations are essential.
Finally, the last most important part of Schedule A asks for the same information, but in points. Basically, in order to get a loan or the actual home, the money you must pay can also be explained in points. The points to buy new homes are the only ones that matter.
If you also got a loan for a second home, there is no need to include it, not to mention about the refinancing loans. The interests for such loans are normally deducted during the overall life of the loan and not in one shot. In conclusion, you need other procedures for them. Moving on with Schedule A, the rest of the form is easy to complete.
Claiming a mortgage interest deduction can be done on your first two homes only, but not simultaneously. If you have more properties, you cannot earn something for them, unless they are on someone else's names. This restriction aims to help the people who want a home and not those who work in real estate.
Maintain some good records about the money or points you get, especially when you get them over the life of your loan. If you choose to get rid of this settlement by selling it, you can deduct all the points left.
You must be the homeowner and the one responsible for paying the interest in order to earn a deduction. If you are the owner and not the one dealing with the interest or vice versa, you will never come up with a positive result.
Finally, if you got the loan later than October, 13th, 1987, the maximum amount of money you can get is a million dollars. However, if you are married and you do the filling independently, you will obviously get half of that only.