How Much Can I Deduct? Mortgage Interest & Tax Deductions
You may be just a few weeks removed from filing your 2021 income taxes, but did you understand the numbers related to your mortgage interest deductions? Like many Americans, you probably put your trust in a seasoned tax preparer and hoped for the best. Let’s clear up the mystery and confusion around mortgage interest deductions.
What is it? Mortgage interest deduction allows you to lower your taxable income by the amount of interest paid on your mortgage. This law has been in effect since the 2018 tax year. The IRS allows the deduction of interest on your mortgage loan when it is used to purchase, construct, or make substantial improvements to a primary or secondary residence.
How much is the deduction? You may deduct the interest on up to $750,000 of qualified residence loans. If you’re married and filing separately, you can deduct interest on up to $375,000 of qualified debt. Note: The amount decreased from $1 million ($500,000 for married filing separately) under the Tax Cuts and Jobs Act. If your loan was approved before Dec. 15, 2017, you can deduct the previous limit of $1 million (or half that amount if filing separately from your spouse).
Let’s see an example. In January of 2021, you were approved for a $350,000 loan to purchase a $400,000 home. You used the home as collateral to secure the loan. Later in 2021, you borrowed $150,000 for repairs on your summer residence, valued at $200,000. You used the summer home to secure that loan.
Your total in loans on both homes is now $500K, which falls below the $750,000 limit. Because you’re using the money specifically to buy and make improvements to your primary and secondary homes, you may deduct the interest you pay for these loans from your taxable income. It can be a considerable deduction.
Can I deduct from a home equity loan? Yes, but only if under the right conditions. Similar to your mortgage, a home equity loan is considered a qualified residence loan by the IRS. You’re OK to deduct if, like the example above, you’re using the money for home-related improvements. You may not deduct interest if the money is used to pay for personal debt reduction or other expenses like student loans.
What if I’m paying my son’s mortgage? You may deduct the interest, but only if you are listed as the legal owner of the home. If not, your parental generosity will not be rewarded by the IRS.
More details, please click here for Publication 936: Home Mortgage Interest Deduction.
* * * * *
If you’d like to chat about mortgage options, please call me at 617-965-1236. If you’re planning to buy this year, let’s talk soon. I look forward to speaking with you.
Ready to buy a new home or refinance the one you own? Please get in touch and I’ll be happy to answer your questions and help guide you through the process. I look forward to speaking with you.
Sauce It Up
With Memorial Day weekend signaling the unofficial start of summer, we know lots of grills and “Kiss the Cook” aprons will be brought back into action. Just one thing: you may know how to barbecue like a grill master, but how well do you know your barbecue sauces? Get to know them and you’ll have friends and neighbors in your yard all summer long.
- St. Louis Style. This is a must for those baby-back ribs you’re defrosting. St. Louis blends many ingredients from other regions for a tangy deliciousness.
- Memphis Style. You may think this is a trick question, because most barbecue joints in Memphis serve their meats without sauce. But that doesn’t stop our friends from Tennessee. Memphis sauce complements the dry-rubbed pork, and is often served as a side condiment.
- Texas Style. Perhaps the most savory of the sauces, beef bouillon is the secret ingredient for peak sauciness.
- Kansas City Style. This is probably the style you’re most familiar with, because this sauce goes with all meats. Tangy and sweet with a touch of molasses, Kansas City’s barbecue sauce is legendary.
Too much meat? Here are some recipes to grill for your vegetarian and vegan friends and family.
Home Improver: Stop Ants with Home Remedies
If you’re like a growing segment of America, you’re noticing you’ve got too many toxic sprays in your home. But how else do you get rid of ants without a toxic spray?
Try a home remedy: DIY ant repellent. There are several natural ingredients to keep the little food-seeking armies away from your home.
- Vinegar. Fill a spray bottle with a 50-50 mix of vinegar and water. Spay directly on ants. Wipe them up and dispose of the dead insects.
- Mint. We may find it a refreshing scent, but ants can’t stand mint. Wipe down ant entryways with a few drops of peppermint essential oil and ants will head to the neighbor’s house instead.
- Cayenne or Black Pepper. If you spot an ant entryway (typically cracks or openings in windows, doors and floors), create a little wall of pepper to keep ants out. Use the 50-50 water/cayenne method (see “vinegar” above) to chase ants away. If you feel bad for the little critters and just want to stun them so they run away, this method should get the job done.