With the prices of things rising, jobs tight, and investments performing weakly, it seems that every paycheck is stretched to the limit. We often choose or are forced to rely on credit to pay for the things we want or need. Whether you are a borrower or a lender, you may be eligible for tax breaks with respect to loan activities.
This chapter explains the tax rules related to borrowing money. For more information, see IRS Publication 550, Investment Income and Expenses, and IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
Home Mortgage Interest
If you are a homeowner repaying a mortgage, you can deduct the interest portion of your payments. There is no dollar limit on how much interest you can deduct. However, the law limits the amount of borrowing you can take into account in figuring your deductible interest on loans taken after October 14, 1987.
For acquisition indebtedness to buy, build, or substantially renovate your home: $1 million
For home equity debt, which is a loan other than acquisition indebtedness secured by your home (such as a home equity line of credit): $100,000
In effect, you can deduct all of the interest on up to a total amount of debt of $1,100,000 ($1 million acquisition indebtedness plus $100,000 home equity debt). These dollar limits are halved for married persons who file separate returns. The amount of the dollar limits for unmarried co-owners is not settled (courts are split). ...