Today TaxMama hears from Ali in Northridge, CA, who has a seemingly easy question. “If I bought a house for $800,000.00 with a 30 year mortgage, can I deduct the mortgage interest?
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What is the maximum amount that can be deducted?
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Also can I deduct property tax, home insurance and association dues?
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Dear Ali,
Although this does seem like a pretty straightforward issue, it’s become rather complicated, the higher your income and your mortgage rises.
Yes, you may deduct the interest on your mortgage.
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You may deduct the interest on up to two homes or vacation properties you own, as long as the total combined mortgages do not exceed $1,100,000. So, if you only have the one property, you have nothing to worry about. https://www.irs.gov/publications/p936/index.html
Yes, you may deduct the property taxes. In fact, there’s no limit to the number of properties on which you may take property tax deductions.
However, on your residence, there’s no deduction for the association dues or insurance.
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That said, with property tax that expensive, you need to have some pretty high income to be able to afford it. As a result, your deductions are going to be limited in two ways.
1) There is an itemized deduction phase-out (reduction) based on your income level. https://www.irs.gov/publications/p17/ch29.html
2) Itemized deductions also tend to be affected by alternative minimum taxes. https://www.irs.gov/publications/p17/ch30.html#publink100034741
So, if you can afford to buy an $800,000 home, you can certainly afford in invest a few dollars in a consultation session with a good, local tax professional to see how these limits affect your deductions. And, as it happens, I know several excellent pros in the Northridge and SFV areas.
And remember, you can find answers to all kinds of questions about mortgages and other tax issues, free. Where? Where else? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- IRS Publication 936 :: Home Mortgage Interest Expenses
- IRS Publication 17 :: Chapter 29 – Limit on Itemized Deductions
- IRS Publication 17 :: Chapter 30 – AMT – Alternative Minimum Taxes
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