Because of many home-related tax changes over the years, it can easily confuse taxpayers on what, when, and how much qualifies for a home mortgage-related deduction. When your mortgage company reports tax-related information to you and the IRS using Form 1098, it no longer means all the interest and points reported on these statements are tax deductible. Here is what homeowners need to remember about the new tax rules:

New rules for homeowners

• Loan amount limits for mortgage interest deductions. For mortgages starting on or after December 15, 2017, you can deduct interest on up to $750,000 of the loan. However, for mortgages initiated before December 15, 2017, it is $1 million. If your original mortgage is above the threshold, a calculation will have to determine the deductible amount of interest. You can’t simply deduct the full amount of interest on your Form 1098.
• Proceeds not used to buy a home add complexity. Proceeds from home equity debt that are not used to build, buy, or substantially improve a qualified home are not tax deductible. This includes mortgage or home equity proceeds used to pay for college expenses, debt consolidation, or other purposes. Mortgage companies issuing these loans will still send you a Form 1098. But it’s up to you to prove how you use the funds during the current year and any prior year.
• Mortgage points require a review of settlement statements. Points are paid as a way to obtain a lower interest rate. Generally, points are deductible in the year they are paid, but they have more restrictions than mortgage interest. Points for a refinance of an existing mortgage, for example, may need to be deducted over the life of the loan. If you bought or refinanced a home this past year, a review of your mortgage settlement statement may be a requirement to ensure proper tax treatment of the cost of your points.
• Mortgage insurance premiums are not deductible. If you pay mortgage insurance, your mortgage insurance premiums are not deductible. This on-again, off-again deduction is now in the off position.

Confused?

With the rise in interest rates over the past several years, more taxpayers will be itemizing their deductions due to mortgage interest. So for each Form 1098 you receive, make a note to explain what the loan is for. This will ensure a proper deduction. Contact our RRBB advisors if you have any questions or concerns.