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Saturday, January 08, 2011

Some Limits On Home Mortgage Interest Deductions

In most cases, all home mortgage interest is deductible.  Whether it is deductible depends on the date the taxpayer took out the mortgage, the amount of the mortgage, and the use of the proceeds.

There are 3 categories that all residential home mortgages fit:

. Mortgages prior to October 14, 1987
. Mortgages since October 13, 1987
. Home equity debt

Not many existing mortgages now fit into the first category.  The second category requires that the proceeds be used to buy, build, or improve the taxpayer's home and ONLY if total is $1 million or less ($500,000 or less if married filing separately).  For the third category, the proceeds can be spent for ANYTHING but ONLY for mortgages that total $100,000 or less ($50,000 or less if married filing separately) AND do not exceed the fair market value of the property reduced by any debt fitting the first two categories.

The limits for the second and third categories apply to the combined mortgages on taxpayers' main home and second home.

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