Who Can Claim the Mortgage Interest Tax Deduction?
What Is Secured Debt?
In personal finance, secured debt refers to debt obligations fulfilled using an asset instead of cash. This helps the borrower to secure a lower interest rate at the cost of having to give up an asset in case of default.
Examples of secured debt include mortgages, car leases, auto loans and student loans.
Since the borrower gives up an asset to get the loan, the bank has the right to repossess it if you can’t make the payments. This protects the bank, but it may not always be fair. For example, when you default on a mortgage, the bank can repossess your house even if it’s worth less than the debt you owe.
Can You Deduct Interest on a Mortgage Refinance?
One of the big mistakes taxpayers make when they file tax returns is forgetting to deduct the mortgage interest they’ve paid throughout the year.
A common reason for this error is that a taxpayer files taxes using the old mortgage balance while calculating the mortgage interest paid.
Since bonuses and overtime are often received after filing taxes, they can be used as a way to cover the mortgage interest that is omitted from tax returns.
The caveat is that you’ll need to be extra careful to keep differentiate the money used for the interest from other items on your pay stub.
Also, in some cases, itemizing your deductions makes more sense. This is because you can claim significant deductions on your mortgage, such as private mortgage insurance.
Can You Deduct Interest on a Home Equity Loan?
Many homeowners have treated their home like a source of cheap credit for years, selling off their equity to finance everything from home improvements to vacations. Now, with homeownership at its lowest level since 1995, taxpayers are turning to home equity loans and lines of credit like never before.
During the last quarter of 2011, the Federal Reserve’s Consumer and Business Finance Surve