The Mortgage Interest Tax Deduction permits qualifying U.S. taxpayers to claim a large share of the interest that they pay to their mortgage lenders as a taxable-income deduction. Although this deduction costs the IRS billions of dollars each year and contributes to the widening U.S. budget deficit, it also permits thousands of first-time home buyers to purchase their dream homes without inviting financial ruin. Among the dozens of tax deductions that regular U.S. taxpayers can claim, the Mortgage Interest Tax Deduction is among the most popular and successful.
This deduction's success owes much to its relatively lax eligibility standards. Virtually all American homeowners who meet certain income requirements are eligible to claim the Mortgage Interest Tax Deduction on their primary residences. In fact, the deduction can also be claimed on many vacation homes as well. The income cutoff for this deduction is currently set at well above $100,000 for single filers and is nearly $200,000 for married filers. Meanwhile, any vacation home that's used for more than a few weeks per year may qualify for the deduction as well.
Certain rental properties are also covered by the Mortgage Interest Tax Deduction. These claims are made on separate IRS forms and may require the assistance of a trained tax professional. However, regular homeowners who don't work as landlords may claim this deduction on certain rental properties that double as "personal use" homes. For such a property to be eligible, it must be used as the taxpayer's primary residence for at least one out of every 10 days of the year. Unfortunately, taxpayers may only use the deduction on one such rental property.
One of the biggest perks of the Mortgage Interest Tax Deduction is its international reach. In fact, qualifying U.S. taxpayers may claim this deduction on their foreign mortgages. Of course, the claimed home must serve as a primary or secondary residence and can't be added to the two-home deduction limit that the IRS imposes. There are few geographical restrictions for this deduction.
Virtually anyone who pays taxes in the United States can claim this deduction. This includes citizens, permanent residents and certain long-term visa holders. Even recent immigrants who rent properties in the U.S. while continuing to own homes in other parts of the world may claim this deduction. However, non-citizens who claim this deduction stand a far greater chance of being audited by the IRS than permanent U.S. residents.