Jack Woods

 

Central Business Solutions 

301 Lynnfield Street, P.O. Box 3169 Peabody, MA 01960

 

Phone:  978-532-0266

Fax:      978-532-9105

 

1147 Main Street, Suite 213, P.O. Box 299 Tewksbury, MA 01876

 

Phone: 978-851-8044

Fax:     978-851-9332

 

Email: jack@cbps.com

August 2021

Deduct Mortgage Interest

Deduct Mortgage Interest

Buying a house in this red-hot housing market comes with tax perks for those who itemize deductions.


KNOW YOUR LIMITS
The interest you pay on the first $750,000 of acquisition debt is tax deductible. Acquisition debt is any debt used to acquire, construct or substantially improve a residence and is secured by the home.


Interest on acquisition debt for a second home may also qualify depending on whether you rent it out. If you rent your second home, you’ll also need to use it yourself. If you don’t use the home, it’ll be considered rental property with a different tax treatment. The rental property mortgage interest deduction also offers significant tax benefits.


LOOK AT THE DETAILS
If you take out a home equity loan, the interest may be deductible. You’ll have to look at the details of how the loan proceeds were used.


Suppose the proceeds were used to improve the house by remodeling the kitchen. In that case, the interest paid on the loan is deductible so long as the principal amount of the home equity loan and any other acquisition debt is below the $750,000 threshold.


But if you used the home equity loan to pay off student loans, for example, the interest isn’t deductible. Your tax professional can provide guidance for your situation.


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