Home mortgage interest, for U.S. federal income tax purposes, is interest on any loan secured by your main home or a second home. The loan can be a first loan to buy or build your home, a second mortgage, a line of credit, or a home equity loan. You can take the deduction for home mortgage interest as an itemized deduction on Schedule A of your tax return.
Qualifying Mortgage Loan
In order to claim the tax deduction for home mortgage interest, you must be the person who is legally liable for the loan. You cannot deduct payments of interest on a loan for someone else. And the mortgage must be a secured loan on what the Internal Revenue Service (IRS) refers to as a qualified home.
Secured Loan
A secured loan is one in which you sign an instrument (mortgage, deed of trust, or land contract) that provides that:
Your ownership in the home is security for payment of the debt,
In the event of default, your home could be used to satisfy the debt, and
The instrument is recorded or perfected under any applicable state or local law.
The basic idea is that you put your home up as collateral.
Qualifying Home
The definition of a qualifying home includes a house, condominium, mobile home, boat, or similar property. The home must provide basic living accommodations, including sleeping space, toilet, and cooking facilities. Your main home is where you live most of the time. If you have a second home that you do not rent out or hold for resale, you can treat it as a qualified home, even if you do not use it during the year. But if you rent out your second home for part of the year, you must also use it yourself in order for it to be a qualifying home. You must use the home for 14 days, or 10% of the number of days it was rented, whichever is longer.
A home under construction is treated as a qualifying home for a period of up to 24 months, if you occupy the home when it is ready for occupancy. The 24-month period can start at any time on or after the date construction begins.
If your home is destroyed in a fire, storm, tornado, earthquake, or other casualty, you can continue treating it as your qualified home (and deducting mortgage interest) if within a reasonable period of time you rebuild the home and move into it, or sell the land on which the home was located.
A home that you own under a time-sharing plan can be considered a qualified home if it meets the requirements. If you rent it out, it qualifies as your second home only if you use it yourself during the year.