How to Report Mortgage Interest Paid

The Internal Revenue Service allows a federal income tax deduction for people paying mortgage interest who itemize their deductions. The mortgage interest tax deduction's value depends on your income tax bracket. The higher your tax rate, the more valuable the deduction will be because it decreases your taxable income rather than directly lowering your taxes due. When reporting your mortgage interest paid for the year, you need to make sure your mortgage falls within the limits, or if not, that you adjust your deduction appropriately.

• 1

  Check the amount of mortgage interest paid in box 1 of form 1098. If you have not received this form from your lender, contact them so they will send you a copy so you can deduct it from your income taxes.

• 2

  Divide the mortgage size limit for your filing status by your average mortgage balance if your mortgage exceeds the limits. If your mortgage is smaller than the limits, skip to step 4 because all of your interest is deductible. As of 2010, if you are married filing separately, you can deduct the interest on the first $500,000 of your mortgage. All other filing statuses can deduct the interest on the first $1 million of the mortgage. For example, if you are single and have a mortgage of $1.6 million, you would divide $1 million by $1.6 million to get 0.625.

• 3

  Multiply the step 2 result by the mortgage interest paid to find how much of your interest you can deduct. For this example, if you paid $105,000 in mortgage interest, you would multiply 0.625 by $105,000 to find you could deduct $65,625 in mortgage interest.

• 4

  Report the mortgage interest you can deduct on line 10 of Schedule A. This amount will be included with your other itemized deductions, with the total being reported on line 29.

• 5

  File your tax return with form 1040. No other tax form can be used. Your total of your itemized deductions, including your mortgage interest paid, will be reported on line 40a.