TAX DEDUCTIBLE INTEREST



Although many forms of ongoing interest payments are not tax deductible, there are forms of tax deductible interest that can be employed by people who may not be aware that they are eligible. Some homeowners with a mortgage, students dependent upon federal loans, and even some educators may be eligible to benefit from tax deductible interest. Even minor investors may also be able to claim tax deductible interest on their tax returns. There are many limitations on different types of deductions, and interest accrued by most types of debt is usually not tax deductible. For instance, interest on personal debt is not tax deductible, but many business expenses accrue interest which can be deducted. Knowing what types of tax deductible interest applies to an individual's tax returns can often be confusing, but will inevitably save money when filing.



Most individual's filing taxes with a home mortgage are aware that interest on household mortgage can be deductible with certain limitations. Home equity loans and loans received for the original purchase of a home accrue interest that can be deducted up to $1,000,000.00. This deduction must be calculated with other itemized deductions to determine whether or not the tax deductible interest exceeds the standard deduction on form 1040A. The tax deductible interest amount is provided by the mortgage broker on form 1098. If the filer chooses to claim mortgage interest, this can be deducted on the 1040 itemized long form. The Internal Revenue Service provides publication 936 to determine whether or not an individual's mortgage interest qualifies and the amount the does not exceed the limitation.

Student loans accrue another type of tax deductible interest. Not only can filers claim academic tuition and other expenses for themselves or a dependent, they can also claim interest on student loans. Lenders provide loan recipients form 1098E which includes the interest amount on the loan for a given year. The student loan interest is entered on line 33 of the standard form or line 18 of 1040A. This is the adjustment to income line which will deduct the tax deductible interest from the individual's taxable income. The limit on tax deductible interest on student loans is $2,500 per year. This deduction can be made by the loan recipient or those who have dependents that received student loans.