Home-related tax rules changing over the past few years have caught some taxpayers by surprise. When your mortgage company reports tax-related information to you and the IRS using Form 1098, it no longer means all the interest and points reported on these statements are tax deductible. Here’s what you need to know.
Mortgage interest deductions have new loan amount limits
For new mortgages starting on or after Dec. 15, 2017, you can deduct interest on up to $750,000 of the loan (down from $1 million for mortgages initiated before Dec. 15, 2017). If your original mortgage is above the threshold, a calculation will be done to determine the deductible amount of interest. You can’t simply deduct the full amount of interest being reported on your Form 1098.
Proceeds not used to buy a home add complexity
Proceeds from home equity debt that are not used to build, buy or substantially improve a qualified home are not tax deductible. This includes mortgage or home equity proceeds used to pay for college expenses, debt consolidation or other purposes. Mortgage companies issuing these loans will still send you a Form 1098, but it’s up to you to prove how you use the funds during the current year and any prior year.
Mortgage points requires review of settlement statements
Mortgage insurance premiums are still deductible
With all the buying and selling of homes in the past year, being aware of the tax consequences is more important than ever. For each Form 1098 you receive, make a note on the form to explain what the loan is for to ensure proper deduction. If you have questions, please contact any member of the Baker Holtz team at 616-458-1835.