Limits on Your Mortgage Interest Tax Deduction

One of the benefits of financing your home purchase is that you can write off the amount of interest you pay on your mortgage each year.  This applies to your federal taxes, but not necessarily to your state taxes. 

Most people believe there is no limitation on this deduction.  Sadly, there really is. First, the deduction can only be taken on the mortgage for the home you actually live in.  It does not apply to other properties you may own. 

Second, you cannot deduct the interest applicable to any loan amount above one million dollars.  This does not seem fair, of course.  There are parts of the country in which fairly modest homes cost more than that amount, and why penalize a person who has managed to afford a really nice home?  Don't we all dream of that?

Third, you cannot deduct any interest paid on a equity loan for an amount exceeding $100,000.  Again, this seems unfairly restrictive, but to avoid problems, one must play by the rules.

Finally, be keenly aware that tax law changes all the time.  For that reason, it is a good idea to speak with your tax professional regarding the latest rules at least annually.