- 1). Consult your mortgage documents to determine the average mortgage balance for the year. You can also contact your lender for this information.
- 2). Compare your average balance to the limits for the mortgage income tax deduction. If your balance falls below the limits, you can deduct the entire amount. For example, if you have a mortgage with a balance of $400,000, you can write off all of the interest that you paid. However, if your mortgage balance exceeds the limits, you must calculate the portion of your interest you can deduct.
- 3). Divide your mortgage balance by the cap set by the IRS. For example, if you are married filing separately, the cap equals $500,000. If your average mortgage balance equals $800,000, you would divide $800,000 by $500,000 to get 1.6.
- 4). Divide the interest paid, found in box 1 of your Form 1098, by the result from Step 3 to calculate the amount of interest you can deduct on your taxes. Finishing the example, if you paid $55,000 in mortgage interest, you would divide $55,000 by 1.6 to find you could deduct $34,375.
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