Tax Hack: How to Write Off Your Mortgage Interest Payments - Black Enterprise

Tax Hack: How to Write Off Your Mortgage Interest Payments

real estate
(iStock: michaeljung)

As a true entrepreneur, you never want to leave good money on the table. And yes, while it can be confusing, if you’re a real estate investor or homeowner, one of the best tax hacks you can use to collect free money is deducting the interest payments on your mortgage. Just to cover this quickly, here are the main things you need to know about interest deduction.

Fast Facts:

  • A tax deduction is an amount you can subtract from your taxable income, thus reducing the amount of tax you have to pay
  • If you have a mortgage, you can deduct the interest expenses from your personal tax return
  • When you borrow money to buy, build, or remodel your home the mortgage interest deduction allows you to avoid paying tax on the interest
  • The maximum mortgage debt for which interest is deductible is limited to $1,000,000

How It Works

According to the IRS, a “new mortgage taken out to buy, build, or improve your home is fully deductible only if the total debt from all mortgages amounts to $750,000 or less for married couples and $500,000 or less for singles or married couples filing separately.”

How You Get It

Again, according to the IRS, the basic breakdown of qualifying for mortgage interest deduction is this:

  • In most cases, you can deduct all of your home mortgage interest.
  • Mortgages you took out on or before Oct. 13, 1987 (called grandfathered debt).
  • Mortgages you (or your spouse, if married filing a joint return) took out after Oct. 13, 1987, to buy, build, or improve your home— but only if throughout 2017 these mortgages, plus any grandfathered debt, totaled $1 million or less ($500,000 or less if married filing separately).
  • Home equity debt taken out after Oct. 13, 1987—but only if the debt totaled $100,000 or less ($50,000 or less if married filing separately) throughout 2017.

As you can see, this gets confusing pretty quickly and it is tough to explain easily. I’m not going to pretend to be a tax expert on this, so definitely consult with an accountant here.

Tax laws are often written—and updated—in ways that are tough to decipher, in turn leaving many people to say “Screw it!” and leave money on the table.

—Disclaimer: The opinions and financial advice expressed in this article are solely those of the contributor’s and not Black Enterprise’s.