This tax credit can be used by those who have taken a loan for the purchase of a main residence and pay an interest on it. The credit is allowed for second mortgage too. In most cases, the tax credit allows you to deduct all of your home mortgage interest.
You can only claim this credit if you fulfill these conditions:
- If you file Form 1040 and itemize your deductions on Schedule A, Form 1040.
- The mortgage is a secured debt on a qualified home
- You have an ownership interest on the qualified home.
A qualifying home must either be your primary residence or your second home. A primary residence is the home in which you live most of the time during a year. A second home is a home that you treat as a secondary place of residence. For tax purposes, a qualifying home includes a house, a mobile house, boat, cooperative, condominium, or a property that has sleeping, cooking and toilet facilities.
If you have property other than your primary or second home, and you wish to claim the Mortgage Interest Credit for that property, the proceeds of the loan must be used for business, interest or other deductible purposes. If you satisfy these criteria, interest on mortgage of the other property can be deducted.
The amount that can be deducted depends upon:
- The date of the mortgage
- The amount of the mortgage
- The use you put the mortgage proceeds to
You can claim the credit on more than one property. If more than one mortgages qualify for the Mortgage Interest Credit, you can claim this credit for all of them.
Remember, you can only make this deduction if your mortgage is a secured debt. A secured debt is one where you sign a document such as a mortgage, a deed of trust, or a land contract that states that you are responsible for the payment of the debt, and that your home could satisfy the debt in case of default. The contract needs to be a legal document, signed by both the parties.