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Understanding deductions for property taxes and mortgage interest can help homeowners reduce their taxable income. These deductions are common benefits available to many taxpayers who own property and have a mortgage. Knowing how they work can maximize potential savings on tax returns.
Property Tax Deduction
The property tax deduction allows homeowners to deduct the amount paid in property taxes from their taxable income. This deduction is applicable for taxes levied by local governments, including city, county, or school district taxes.
To qualify, the property taxes must be based on the property’s assessed value and must be paid during the tax year. The deduction is itemized on Schedule A of the tax return and can be combined with other deductible expenses.
Mortgage Interest Deduction
The mortgage interest deduction allows homeowners to deduct interest paid on their mortgage loans. This deduction applies to loans used to buy, build, or improve a primary residence or a second home.
Interest on mortgage debt up to a certain limit is deductible. For mortgages taken out after December 15, 2017, the limit is $750,000 of qualified residence loans. For older loans, the limit is $1 million.
Additional Considerations
Taxpayers should keep detailed records of property tax payments and mortgage interest statements, such as Form 1098. These documents are necessary to claim deductions accurately. It is also important to note that only itemized deductions can include these expenses, so standard deduction may be more beneficial for some taxpayers.
- Keep records of property tax payments
- Save mortgage interest statements (Form 1098)
- Compare itemized deductions with standard deduction
- Be aware of deduction limits based on loan dates