In most cases, taxpayers are able to deduct all home mortgage interest. Whether it is entirely deductible depends on the date the mortgage was taken out, the amount of the mortgage, and the use of its proceeds.
When is Mortgage Interest Fully Deductible
If your mortgages fit into one or more of the following three categories during the entire year, you can deduct all of the interest:
- Mortgages taken out on or before October 13, 1987, which are sometimes called grandfathered debt.
- Mortgages taken out after October 13, 1987, to buy, build, or improve your home, but only if throughout the year, these mortgages plus any grandfathered debt total $1 million or less. (The total is $500,000 or less if married and filing separately.)
- Mortgages taken out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if throughout the year, these mortgages total $100,000 or less and total no more than the fair market value of your home reduced by numbers 1 and 2 above. For married couples filing separately, the mortgage total is $50,000.
The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home.
Depending on the lender, you might be charged a variety of fees when establishing and maintaining a home equity line of credit, including:
Property appraisal to determine the value of your home.
Application fee, which may not be refundable if the loan is turned down.
Upfront fees, such as one or more points. (One point is equal to one percent of the amount of the credit line).
Closing costs, which can include title search, mortgage preparation and filing fees, property and title insurance, taxes, and attorney fees.
Depending on the lender, there may also be an annual fee or a transaction fee when you draw on your line of credit.