Mortgage Interest Payments

• When you obtain a mortgage loan to purchase a qualified home, the IRS allows you to deduct the interest payments you make during the tax year. You can have up to two qualified homes. The first is always your main residence, which by default is the home where you reside for the majority of the year. The second can be any personal-use home of your choosing, such as your vacation retreat on the beach. Additionally, the IRS will disallow your mortgage interest deduction if the mortgage lender doesn't take a security interest in the qualified home. This provides your lender with an ownership interest in the home until you repay the entire balance of the mortgage. In the event you default on repayment, the lender can foreclose on your home without having to file a lawsuit or obtain a legal judgment against you.
  
  

Mortgage Insurance Premiums

• If the mortgage lender requires you to obtain mortgage insurance, you can deduct the premium payments you make on the policy each month. To qualify, you must obtain the insurance through the Department of Veterans Affairs, the Federal Housing Administration, the Rural Housing Service or through a private insurer that issues the policy pursuant to the Homeowners Protection Act. If you are unsure whether your private insurance qualifies, you should refer to the terms of your insurance contract.
  
  

Real Estate Taxes

• Regardless of whether you make your property tax payments with your mortgage or directly to your local government, the IRS allows you to deduct all tax payments you make during the year. As long as your local government imposes the tax on the value of all homes within its jurisdiction using a uniform rate, the IRS treats it as a deductible property tax. However, you must be the taxpayer who is legally responsible for paying the property tax. In the event you agree to pay the property tax on another person's behalf, the IRS will not permit you to claim the deduction.
  
  

Electing to Itemize

• All of these deductions that relate to your home mortgage can add up quickly and potentially save you a substantial amount of income tax. However, they are only available if you elect to itemize your deductions on Schedule A. If you claim the standard deduction instead, you cannot claim any additional deductions for the mortgage expenses you incur. This requires you to evaluate each year whether the total of your expenses that are eligible to be itemized is greater than the standard deduction for your filing status. Since you can always choose the larger deduction, it's possible that the standard deduction will save you more in tax.