Can I deduct my mortgage interest in 2024?

Did you know that your mortgage interest is not always tax-deductible? Here is how you can find out whether or not your mortgage qualifies for a tax deduction.

DO YOU ITEMIZE YOUR TAX DEDUCTIONS?

If you take the standard tax deduction, you can't use the mortgage interest deduction. For 2024 tax returns, the standard deduction is $14,600 for single taxpayers, $21,900 for heads of household, and $29,200 for married taxpayers filing a joint return. These deductions increased from 2023 levels of $13,850 for single taxpayers, $20,800 for heads of household, and $27,700 for married taxpayers filing a joint return. For specific questions about deductions, contact your accountant.

IS YOUR HOME A "QUALIFIED RESIDENCE"?

Generally, taxpayers are allowed to deduct the mortgage interest on up to two qualified homes - one primary home and one vacation home. No matter which type of home, the mortgage must be attached to a "qualified residence."

DOES YOUR MORTGAGE CLASSIFY AS "ACQUISITION INDEBTEDNESS"?

If your mortgage or home equity was used to buy, build, or improve a qualified residence, then that debt is considered "acquisition indebtedness." In most cases, you can deduct the interest on mortgage balances up to $750,000 of Acquisition Indebtedness. Let's walk through two examples to show you what I mean:

• Sam buys their $500,000 primary residence using a $400,000 mortgage. Sam can deduct the interest on the $400,000 mortgage as acquisition indebtedness because the mortgage purchased a qualified residence and the mortgage amount is within the $750,000 limit.
• Casey pays cash for their $500,000 primary residence. Twelve months later, Casey does a cash-out refinance and puts a $400,000 mortgage on the residence without making an improvements to the property. Casey would NOT be eligible to deduct the interest on the new $400,000 mortgage because they did not use the funds to buy, build, or improve the house.

WAS THE LOAN TAKEN BEFORE DECEMBER 16, 2017?

The acquisition debt limit is $1 million and not $750,000 if (1) you closed on your home loan before December 16, 2017 and (2) the loan qualified as acquisition indebtedness at that time. As long as you don't increase the current balance on the loan, you can keep that $1 million limit.

For example, if your current balance is $950,000, the new mortgage you’re refinancing into can’t exceed $950,000. This is also true when consolidating or refinancing a home equity loan or line of credit taken out before December 16, 2017, as long as the home equity loan was used to buy, build, or improve a qualified residence. In this example, your combined aggregate total limit would be $1 million, no matter if you keep both loans separate or consolidate them into a single loan.

INVESTMENT PROPERTIES ARE HANDLED DIFFERENTLY FOR TAX PURPOSES

Everything mentioned in this article refers to a mortgage transaction involving a primary home or vacation home that is elected as a “qualified residence” for tax purposes. If your transaction was for an investment property, please refer to IRS Publication 527.