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Enacted in 1913, the interest deduction for mortgage interest has been very beneficial for people buying their own home to claim as a deduction when filing their income tax return each year. Basically, the filer can deduct the interest paid on their home mortgage and thereby lower the amount of income they are responsible for paying taxes on.

The interest deduction for mortgage interest was enacted to provide tax relief to taxpayers in homes qualifying for the deduction. The taxpayer is allowed to claim this interest deduction for the home in which they live. It is possible to have two mortgage interest deductions for your home. One mortgage interest deduction would be on the loan you encumbered when you purchased your home or refinanced your home. The other mortgage interest deduction would be on a loan against your home equity taken out after you purchased your property. As a general rule the equity loan interest is deductible when you use the proceeds on the home. There is another set of rules that come into play if the proceeds are not used investing the equity loan proceeds in the home.

If you have rental property, you can still deduct the mortgage interest paid. However, there is a different IRS Schedule for reporting rental property deductions. There are also rules for how much, if any, of the interest is deductible. You must have resided in the rental property for at least 10% of the time that the property was rented. If you rented the home for 200 days of the tax year, then you are allowed to claim 20 days, which is 10% of 200. The 20 days of mortgage interest that you claim for living in the rental property is reported on Schedule A. The other 180 days of mortgage interest is reported on the IRS Schedule for reporting income/deductions for rental property.

The documents that you should keep on hand in case you are audited by the IRS are those from which you obtained your mortgage interest paid information. For example: If you have a commercial lender for your mortgage you will be provided with a form 1098 after the end of the tax year. If your lender is from a private source, like an individual, then you will have to calculate your own mortgage interest rate if it is not provided by the private lender. At any rate, you must report the lender’s name, address, and social security number to the IRS if you are asked for the information.

You may not deduct more mortgage interest than your taxable income. You are not entitled to use the extra mortgage interest by carrying the amount forward to another tax year. You are also not eligible to receive a refund of the excess interest paid.

Even though there have been a lot of tax reform proposals put forward on mortgage interest tax deductions, effective as of May of 2010, there have been no changes in the tax code. There are incentives for homeowners who take advantage of new energy saving technology and who use this technology when they repair or modify their home.