Take Care When Deducting Mortgage Interest

Homeowners generally get a tax break for owning property, making tax time one of crunching additional numbers in the hopes of getting a little extra cash. But the formula for claiming mortgage interest can be a bit confusing, sometimes leading homeowners to claiming the wrong amount of interest. The general rule is that a homeowner can only deduct interest for the acquisition debt associated with the home. Though a home may be worth $500,000, if the mortgage on the property is for $250,000 the interest deducted is based on the smaller, mortgaged amount.

Also, if a homeowner refinances their mortgage and takes cash out at closing, they can usually only claim interest on the original mortgage. The only way to get around this is by investing a majority of the funds pulled out back into the house in any way that will increase the value of the property. A homeowner can also claim the “points” paid on a new home purchase immediately when filing taxes. The points paid for a refinance must be divided by the number of years to repay the loan, and claim that amount each year.\r\n