How to Write Off Mortgage Interest

Deducting your mortgage interest can save you thousands of dollars on your tax bill.

The interest on your home mortgage can be written off your federal taxes and save you thousands of dollars every year. However, to deduct it, you must use the Internal Revenue Service 1040 long form -- not the 1040EZ -- and you must itemize your deductions. Figure out your taxes using the standard deduction. Then do it again, this time using itemized deductions. Compare the results and take your largest write-off. If it's better for you to itemize, you can include the interest from any mortgage secured by your first or second home, including home equity loans and refinanced mortgages, on Schedule A.

Step 1

Collect all the 1098 forms sent to you by your mortgage lender(s). You should receive them by Jan. 31 of each calendar year. Some mortgage companies make the 1098 forms available online for you to print rather than mailing them.

Step 2

Add the total of all the amounts shown in Form 1098, Box 1. Write this number on a separate piece of paper.

Step 3

Find your HUD-1 Settlement Statement, if you bought or sold a house during the tax year. If so, you may have paid interest during the closing process not reported on your 1098 form.

Step 4

Add up all the interest you paid on your HUD-1. Add this amount to the previous mortgage interest number you wrote down.

Step 5

Enter the total amount of mortgage interest you paid on IRS Schedule A, Line 10. You do not have to send the original or a copy of your 1098 forms or HUD-1 forms with your taxes as copies are sent to the government automatically by your lender.

Step 6

Report any mortgage interest you paid to an individual or a company, for which you did not receive a 1098. Report the amount on Schedule A, Line 11, along with the name, address and Social Security number or employer identification number of the person you paid. If you do not include their SSN/EIN, you may be charged a $50 penalty by the IRS.

Tip

If you were issued a Mortgage Credit Certificate by a government agency when you bought your house and are using IRS Form 8396 to claim the Mortgage Interest Credit, you must deduct the amount shown on Form 8396, Line 3 from the total interest you paid on your mortgage.

Warning

You can only deduct interest from a secured debt on a qualified home as listed in IRS Publication 936. You may not be able to deduct the full interest amount based on your adjusted gross income, the amount of your total expenses in relation to the amount of your AGI, the year you bought your home and the amount of the mortgage. Check IRS Publication 936 for all rules and restrictions.

Things You'll Need

  • IRS Form 1040

  • IRS Schedule A

  • IRS Publication 936

  • Form 1098, Mortgage Interest Statement (from your mortgage lender)

  • HUD-1 Settlement Statement (if you bought or sold a house during the tax year)

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