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Like most homeowners, you've probably refinanced your home recently.  According to Plunkett Research, last year approximately $1.1 trillion dollars in mortgage loans were refinanced in the United States.

Did you remember to take an increased mortgage interest deduction on your tax return if you were entitled to one?

Here's how it works. You are allowed to take a deduction on your personal tax return for mortgage interest you have paid on a loan that is secured by either your principal residence or a second home, up to one million dollars in acquisition indebtedness. Mortgages, lines of credit and home equity loans all qualify, as long as they are secured by your home, and you are the primary borrower, and legally obligated to repay that loan. People  who are buying a home using a lease-option, or "rent-to-own" method are not entitled to this deduction.  You cannot take the mortgage interest deduction until the title of the home has actually transferred to you.

The amount you can deduct depends on your mortgage. If your mortgage is more than $1 million, you can deduct all of the interest you pay on the first million, but you can't deduct any more interest after that. The same is true for home equity loans of more than $100,000. You can deduct all the interest you pay on the first $100,000 of debt, but you can't deduct any remaining interest. There are some tax loopholes around this that have to do with what you do with the money you get from the loan. Consult your tax adviser for clarification.

If you have an Option ARM (adjustable-rate mortgage), and you have been paying the interest-only option, then theoretically your entire mortgage payment is tax-deductible if it fits under the $1 million cap. Another type of Option ARM featured is a "deferred" component, which meant not only could you defer your principal payments, you could also defer a portion of the interest due. When it comes to taking these deductions, the deferred option route means your mortgage interest deduction is limited to the interest you actually paid - you don't get a tax deduction for money you haven't paid out.  At the same time, you don't lose anything, either. The interest deduction is merely suspended until such time as those extra interest payments are made. Again, make sure you check with a tax professional who is familiar with the tax codes.

If you, or someone you know, is thinking of buying or selling a home this year and would like to work with a Realtor® who has the knowledge and experience for making your transaction as smooth as possible, Call Me Today at 925.487.5065.