Mortgage Interest Expense

Home Mortgage Interest Deductions

What To Know For Tax Preparation

Mortgage Interest Expense may be a tax deduction for Tucson Homeowners. Knowing how mortgage interest effects your federal tax return is important.

Federal taxes allows homeowners to deduct the interest paid on their mortgage. This can result in significant savings on tax bills each year.

The deduction is a popular incentive for homeownership. It can help make owning a home more affordable for many individuals and families.

The mortgage interest deduction can be a factor when deciding to buy a home. It is a financial benefit that can influence the cost of homeownership.

This deduction in the tax code supports home ownership and investment in real estate.

Classifications of Interest

There are 3 classifications of interest for an individual Federal tax return, and each is subject to different rules.

The fees and charges incurred as part of the mortgage loan funding must be analyzed and ultimately organized into two categories.

1 – Costs that do not quality as interest.

These are usually lending service costs on mortgages used to acquire real estate held for personal use.

Should the mortgage be obtained to acquire real estate used in business or held for profit, the costs are deductible by amortizing them over the life to the loan.

2 – Costs that do qualify as interest.

Costs qualifying as interest become prepaid interest. The prepaid interest costs get capitalized for tax purposes. The capitalized costs are then amortized – on a straight line method – over the life of the loan.

Items considered for amortization include points, loan origination fees, and premium changes.

Further information can be obtained from the Internal Revenue Service website and the Arizona Department of Revenue or Arizona Tax Climate websites

In Summary

This information on Mortgage Interest Expense is general background on the subject. Each personal situations are different.

Contact your tax preparer or financial advisor to understand how it affects you.

Also, mortgage interest rates will be affected by your FICO credit score. Know what yours is and how you can improve it.

The information provided isn’t meant as a substitute for advise from your CPA, professional tax adviser or attorney.  You should always consult with your own financial and tax advisers to discuss such matters.

It is also important to understand the terms Prequalification vs Preapproval BEFORE starting your home search process.

Also, your lender will provide a Good Faith Estimate will be issued within 5 days that your loan is “locked”. Review it carefully, it will show all the costs to be incurred to obtain your mortgage.

Conclusion

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