Mortgage tax deductions are one of the most lucrative write-offs available for Airbnb hosts. Today, we’ll show you how you can calculate and claim the valuable mortgage tax deduction.
Mortgage Tax Deductions: The Basics
Virtually every mortgage borrower can claim deductions relating to their loan. However, you must itemize your deductions to qualify.
It’s also worth noting that mortgage interest is an above-the-line deduction.
There are also limits and other qualifying criteria you must take into account before claiming the deduction.
What are the Mortgage Tax Deduction Limits for 2022?
Prior to 2017, joint-filing borrowers could deduct interest on up to $1 million in mortgage payments, but the limit was reduced by the Tax Cuts and Jobs Act. However, you still fall under the higher limits if you had your mortgage prior to the law’s passing.
If you bought your house after December 15th, 2017, you are subject to the reduced limits. Today, single filers can deduct interest on up to $375,000 worth of mortgage payments. Married homeowners who bought houses after December 15, 2017, can deduct interest on the first $750,000 of their mortgage on a joint tax return.
Who Qualifies for Mortgage Interest Tax Deductions?
To qualify, you must meet several criteria. Your home must be used as collateral for your mortgage, and it must have facilities for cooking, sleeping, and a toilet.
The property can be a house, apartment, co-op, mobile home, condo, houseboat, or house trailer to qualify. However, RVs don’t qualify because they’re considered a vehicle, not a permanent residence.
Do You Have to Live at the Property to Qualify?
You don’t have to reside full-time at your property to qualify for the deduction, so Airbnb hosts can usually claim this deduction.
However, if you have secondary properties you rent for Airbnb, you must reside in the rental for either 14 days or 10% of the time it was rented, whichever is longer.
If you qualify, the deduction for mortgage interest goes on line eight of 1040, so it is an above the line deduction.
What Parts of a Mortgage Are Tax Deductible?
Only some parts of the mortgage are deductible, and they are only deductible under certain circumstances. Let’s see what you can deduct.
Mortgage Interest Tax Deduction
Mortgage interest is one of the biggest deductions for Airbnb hosts and other borrowers. The deduction is open to many types of residences, as described above. Most importantly, the structure must be capable of being a permanent home.
Airbnb hosts must take into account the time they spend at their properties before claiming this deduction.
If you own multiple properties, you can only claim interest deductions on your primary home, unless you meet the 14-day/10% use criteria described above.
For example, if you rent your property for 200 days in a year, you must live there for at least 20 days in the same calendar year.
Private Mortgage Insurance (PMI)
PMI deductions were retroactively reinstated in 2019 after being phased out some years ago.
Most borrowers don’t need to carry PMI on their loan, but you could potentially deduct the expense if you meet some qualifying criteria.
Once again, you must itemize to claim this deduction. Furthermore, you must make less than $100,000 per year to claim the full deduction.
If your adjusted gross income (AGI) is higher than $100,000, you can only deduct a portion of your expense. Once your AGI exceeds $109,000, you cannot claim this deduction.
Home Insurance Premiums
Home insurance isn’t typically deductible for homeowners. However, Airbnb hosts can potentially claim insurance as a business deduction.
For example, you could deduct the expense as required business insurance on your Schedule C. However, you still need to pay taxes on any profits from your rental business.
If you only rent out part of your primary residence, you could potentially deduct a portion of your home insurance expense on Schedule E. Consult with your tax pro for more info.
You can deduct state and local taxes (SALT) from your federal taxes if you itemize. Married filers can deduct up to $10,000, and single filers can write off up to $5,000.
In addition, you can also deduct property taxes on your primary home, vacation home, land, or vehicles.
You must deduct your state and local taxes in the year you pay them, regardless of the billing cycle. If you have an escrow account for your taxes, you can only claim deductions when the expense is actually paid.
Mortgage Tax Documents
Mortgage lenders issue certain tax forms that you need to claim related deductions. Keep an eye out for these documents.
Form 1098: Mortgage Interest Statement
Tax form 1098 shows your total mortgage payments, interest, and other relevant tax info.
Form 1098: Where Can I Find Deductions?
You can find your deductible mortgage interest in Box 1, and mortgage points are listed in Box 6. You can list these figures as deductions on Schedule A of Form 1040, Line 8a.
Can Cosigners Deduct Mortgage Expenses?
The answer depends on whether you made any payments towards the loan. If you made mortgage payments for the primary loan holder, you could potentially deduct any interest associated with those payments.
Please note, you must determine the actual dollar value of the interest you personally paid. You cannot claim the entire Box 1 total unless you made every payment. Your deduction cannot exceed the interest portion of the payments you personally made.
Mortgage Tax Deduction: Closing Thoughts
If you usually claim the standard tax deduction, taking the mortgage interest tax deduction might not be the best option.
If your deductible mortgage expenses are less than the standard deduction, you’re better off taking the standard deduction.
Remember, you must meet certain criteria to qualify for mortgage tax deductions. If you claim this deduction without meeting the necessary qualifications, you could run into trouble with the IRS.
Maximize Your Deductions Now
Shared Economy Tax specializes in helping Airbnb manage their business taxes. Our tax pros can maximize your tax deductions, take bookkeeping and other accounting tasks off your plate, and much more. Get started today with a one-on-one strategy session and let us show you how we can save you money, time, and aggravation. Don’t forget to sign up for our newsletter using the form below to get the latest tax tips, free webinars, expert resources, and much more.