Tax Deductible Interest

Interest payments on your original mortgage - assuming the mortgage isn't larger than the purchase price of the home - are fully deductible for most homeowners. That's a key reason why homeownership is a superb tax shelter.  Mortgage interest on a second home is also deductible.

If you own a third home for personal purposes, the mortgage interested is treated as "consumer loan" interest and is not deductible. Interest on home equity loans (see "Equity Loans" section" is deductible" with some limitations.

Helpful Hint

If you are planning to buy a home with a large amount of cash, consider carefully if you plan to finance the property later. For mortgages taken out more than 90 days after a home purchase, your interest deduction is usually limited to the amount of the original (acquisition) mortgage plus $100,000.  However, if you use some of the new mortgage to improve your home, you can add that amount to the deduction limit.  Keep careful records of home improvement spending and consult your tax advisor about deducting interest payments when you refinance with a higher loan amount to take money out of the refinancing or pay off other debts.

As always, be sure to check with your Tax Advisor for the most up to date advice.

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