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Deducting Mortgage Interest: What You Need to Know

By Dan Caplinger - Updated Feb 15, 2017 at 11:39AM

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Homeownership can give you tax breaks, but can you actually claim them? Find out here.

One of the most popular tax deductions people use is for interest on the mortgage loan you take out on your home. But what are the ins and outs of the mortgage interest deduction, and does it really help you as much as you think?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks closely at the mortgage interest deduction. Dan notes that there are two categories of mortgage loans for IRS purposes: those used to buy or make substantial improvements to a home, and those used for maintenance or non-related expenses. The first category is eligible for deductions on principal amounts up to $1 million, while the second has lower limits of $100,000. That can be a problem when Wells Fargo ( WFC -2.37% ), Citigroup ( C -1.65% ), Bank of America ( BAC -2.27% ), and other lenders offer lower rates for bigger loans that might exceed the deductible-interest amount. Dan concludes with the important point that only those who itemize get the benefit of the mortgage interest deduction, making the tax break worthless for those who take the standard deduction instead.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
C
$62.76 (-1.65%) $-1.05
Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$43.87 (-2.27%) $-1.02
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$47.75 (-2.37%) $-1.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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