Home mortgage interest can be a valuable tax deduction for taxpayers who file returns with itemized deductions.
Mortgage interest can be from the first or second mortgage on your primary or secondary residence, or from any rental properties which you own. Typically, you’ll be able to deduct 100-percent of mortgage interest. Reporting mortgage interest deductions are different for personal residences and rental properties, however. In this article we’ll discuss where you report each type of mortgage interest on an IRS Form 1040.
Reporting Mortgage Interest on Your Personal Residence
If you paid more than $600 annually in mortgage interest, you’ll get a Form 1098: Mortgage Interest Statement from your lender. The form will either arrive in the mail or your lender will send an email with instructions to download it from their website. Expect this form to show up sometime near the end of January at the latest.
Form 1098 shows how much you paid in mortgage interest. You’ll get multiple statements if you refinanced or had more than one lender in place during the calendar year.
If you are claiming Schedule A itemized deductions, you’ll want to pay particular attention to the section titled “Interest You Paid.” Input the amount of home mortgage interest shown on your Form 1098, Box 1, deductible mortgage interest, and input into line 8a of your Form 1040. You’ll only use this information for itemized deductions – if you decide it’s more beneficial to take the standard deduction you can’t deduct the mortgage interest paid during the tax year. Standard deductions for 2021 are:
- $12,550 for single filers
- $25,100 for married joint filers
- $12,550 for married but separate filers
- $18,800 for head of household
Reporting Mortgage Interest on Rental Properties
Reporting requirements are a bit different for mortgage interest paid on rental properties. As a landlord, you likely will find that mortgage interest is one of your largest tax deductions.
You report mortgage interest from rental properties using Schedule E of Form 1040 – partnerships and S-corps that paid mortgage interest on income-generating properties will use Form 8825 to report their rental income and deductible expenses.
Part 1 of Schedule E contains pertinent information about the rental property, such as its physical location, type of property, and days the asset was rented during the year. You’ll note rental income from rents received on Line 3, while mortgage interest is denoted on Line 12.
The Bottom Line
Taxpayers can deduct the mortgage interest paid during a tax year when they file their income tax returns. For personal residences, you use Schedule A of Form 1040 to deduct interest. For mortgage interest paid on rental properties, however, you’ll use Schedule E of IRS Form 1040.
It can be difficult to accurately complete your income taxes, especially if you own multiple rental properties or shared personal time with rental time at one of your assets. Engaging the services of an experienced tax professional can help ensure accurate documentation and avoid any errors when filing your tax returns.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.