How to Deduct the Mortgage Interest on Taxes
- 1). Compare your average mortgage balance to the mortgage interest deduction limit set by the IRS for your filing status. As of 2010, the limit is the interest on the first $1 million if you are single or married filing jointly. If you are married filing separately, the limit goes down to the interest on the first $500,000. If your average balance falls below these limits, you can deduct all of your interest and skip to Step 4.
- 2). Divide your mortgage deduction limit by your average mortgage to calculate the percentage of your interest that you can deduct. For example, if you are single and have a $1,250,000 mortgage, you would divide $1 million by $1,250,000 to get 0.8, or 80 percent.
- 3). Multiply the percentage of your interest that is deductible by the interest you paid during the year. Your mortgage lender will give you a form 1098 at the end of the year that lists how much you paid in interest. In this example, if you paid $90,000 interest, you would multiply $90,000 by 80 percent to find you could deduct $72,000.
- 4). Report the amount of your mortgage interest deduction on line 10 of Schedule A. This amount will be used to decrease your total taxable income.
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