Hello Brad ~
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this web page.
To answer your question: certain itemized deductions (including home
mortgage interest) are limited if your adjusted gross income is more
than $137,300 ($68,650 if you are married filing a separate return).
You must file a Schedule A to deduct mortgage interest. (See
explanation below)
In most cases, you will be able to deduct all of your home mortgage
interest, depending on when you took out the mortgage, the amount of
the mortgage and your use of the premises.
If your mortage fits into one of these categories at all times during
the year, you can deduct all the interest (on all mortgages for the
property):
- 1. Mortgages you took out on or before October 13, 1987
(grandfathered debt);
- 2. Mortgages you took out after October 13, 1987, to buy, build or
improve your home (home acquisition debt) - there is a $1 million
mortgage cap ($500,000 if married and filing separately);
- 3. Mortgages you took out after October 13, 1987, other than to buy
(home equity debt).
These apply only if they covered all of 2002 and apply to your main
home, not a second home.
You cannot fully deduct interest on a martgage that does not fit into
any of the three categories listed above.
If you prepaid interest for future years, you cannot deduct that for
2002, but must spread that out over the years for which they apply.
IRS Publication 7, page 157 discusses the possible llimitations on
your deductible mortgage interest; and Figure 25-A, on page 160 has a
handy map to determine if your mortgage interest is fully deductible.
** Limitations on Deductions
You are subject to the limit on certain itemized ductions if your
adjusted gross income (AGI) is more than $137,300 ($68,650 if you are
married filing separately).
Your AGI is the amount on line 36 of your Form 1040.
To figure the limit, if you are subject to them, all your itemized
deductions are reduced by the smaller of:
1. 3% of the amount by which your AGI exceeds $137,300 ($58,650 if
married failing separately); or
2. 60% of your itemized deductions that are affected by the limit.
Table 22-1 on Page 148, Publication 7 explains it.
You can download Publication 7, "Your Federal Income Tax" from the IRS
Website here:
http://www.irs.gov/pub/irs-pdf/p17.pdf
** Search terms used (all on the IRS Website)
- mortgage interest deductions
- mortgage interest limitations
*** Summary -
Generally the entire amount of mortgage interest paid is deductible
if:
1. You itemize deductions on Schedule A;
2. Your AGI is less than $137,300 ($68,650 if married and filing
separately); and
3. The mortgage was in existance for the entire year (2002).
Hope this helps,
Serenata
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