Homeownership is not only considered a smart financial investment, but also a satisfying personal aspiration. However, owning property is one of the most significant monetary moves most people make during their lifetimes, and generally takes up a large percentage of an owner's income. To help lessen some of the costs, the Internal Revenue Service allows homeowners to claim a mortgage interest deduction. Despite the benefits of this allowance, new data from the IRS shows that few individuals actually take advantage of it.
USA Today recently analyzed data from the federal tax agency, and found that only 25 percent of tax filers actually write off their mortgage interest, and that this figure varies significantly by region, with particularly high rates in costly areas. The use of tax benefit ranges from a high of 37 percent in high-cost areas, such as Maryland, to roughly 15 percent in low-cost regions, such as North Dakota and West Virginia, the news source reports.
Some analysts argue that this scenario occurs due to the requirement that filers must itemize their deductions in order to claim the write-off. As a result, the deduction may only be lucrative for those whose total itemized deductions - which may include charitable contributions and medical expenses - are worth more than the standard deduction. For example, deductions may exceed $12,000 for individuals who live in high-cost areas, such as California, Washington and Hawaii. The current standard deduction is $11,900 for couples filing jointly in 2012.
Claiming the mortgage interest deduction
Some may be on the fence about whether they are eligible to claim a mortgage interest deduction or whether writing it off would be worthwhile. To make this determination, homeowners should keep records of their mortgage statements and consult their tax preparer
. Under current tax laws, homeowners are required to hold a secured loan - meaning the debt must be collateralized by a bank - in order to be eligible for the deduction.
At the end of the year, homeowners' lenders will send them Form 1098, which is their mortgage interest statement. The document will outline how much interest and principal was paid on the residence over the course of the year. Those who write off their interest will apply the information on Form 1098 to Schedule A itemized deductions on their IRS Form 1040.
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