If you choose to itemize your deductions by filling out a Schedule A, then you are eligible to deduct interest paid on a mortgage loan. Deductible mortgage interest falls into two categories:
- Interest for loan that was used to perform renovations on a primary or secondary residence, and the loan is backed by the property. The loan amount is limited to less than $1,000,000.
- Loan interest secured by your home but not used for renovating the property. Considered “home equity debt”, there is an additional $100,000 limit.
Your secondary residents can be anyplace with substantial plumbing, cooking, and sleeping arrangements. This can be a cabin, boat, home, or motor-homes, as long as they meet the living requirements. Loan interest paid on debt secured by boats, trailers, or motor-homes cannot be deducted in relation to the Alternative Minimum Tax.
Paying points on a loan with the intention of purchasing, refinancing, or improving either your primary or secondary home may allow you to deduct the points you spend. Though you should be aware, they’ll have to pro-rate the points amount over the life of the loan. Your closing statement should list the points paid, whether in a loan discount or origination fee. If you pay points during the original purchase of your primary home, you’re able to deduct the entire amount of points you or the seller paid during the year and which they were paid.
If you pay off or refinance your loan, you may qualify to deduct unamortized points that you used over several months. Loan interest on Investment Property, like margin loan interest and investment loan for partnerships, are limited by the investment income you receive for the tax year in order to be deductible.