Mortgage interest deduction: What you need to know

– Homes sold prior to April 1, 2018, are still eligible for the $1 million limit—if there was a binding contract signed prior to December 15, 2017, that closed prior to January 1, 2018, and the house was bought prior to April 1, 2018.

What qualifies as mortgage interest?

What qualifies as deductible mortgage interest includes the following:

Interest on the mortgage for your primary home. Your primary home could include an apartment, a condo, a house, a mobile home, a co-op, and a houseboat. Properties that do not qualify as your primary home are properties that don’t have basic living accommodations, such as bathroom, cooking, and sleeping facilities. Additionally, the property must be listed as collateral for the loan you are deducting interest payments from. It also applies if you have a mortgage to buy out an ex-partner’s half of the property following a divorce.

Interest on the mortgage for a second home. So long as your second home is listed as collateral for that mortgage, you can use the mortgage interest deduction on a mortgage for a home that is not your primary residence. If you rent out your second home, however, you must live there for more than 14 days, more than 10% of the days you rent it out, or whichever option is longer. You can only deduct the interest from one home if you have more than one second home.

Mortgage points you have paid. You might have the option to pay mortgage points when you take out a mortgage, meaning you can pay a portion of your loan interest in advance. Points usually cost roughly 1% of your mortgage amount and can earn you roughly 25% off your mortgage rate. To qualify you for the deduction, mortgage points must be paid at closing and directly to the lender. In some cases, mortgage points can be deducted during the same year they’re paid.