Which of the following is true about the deductibility of mortgage late payment charges?

Q: Is mortgage payment a deductible expense?

Only the use of home as an office from the interest portion of your mortgage is a taxable expense.

A mortgage insurance premium deduction is only available if all of these are true:

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Who qualifies for the mortgage interest tax deduction?
More qualified mortgage interest details
Splitting the home mortgage interest deduction
Mortgage interest deduction exceptions
Help with the mortgage interest deduction
Are late charges on mortgage deductible?
Is mortgage payment a deductible expense?
How much of your mortgage interest is tax
Is mortgage interest tax

You paid or accrued premiums on a qualified mortgage insurance contract issued after Dec. 31, 2006.
The mortgage is acquisition debt for a qualified residence (a new mortgage).
You itemize your deductions.

However, even if you meet the criteria above, the mortgage insurance premium deduction will be:

Reduced by 10% for each $1,000 your adjusted gross income (AGI) is more than one of these:
- $100,000
- $50,000 if married filing separately
Eliminated if your AGI is more than one of these:
- $109,000
- $54,500 if married filing separately

The mortgage insurance premium deduction is available through tax year 2020. Starting in 2021 the deduction will not be available unless extended by Congress.

Who qualifies for the mortgage interest tax deduction?

If you itemize deductions on Schedule A, you can deduct qualified mortgage interest paid on a qualifying residence including your:

Main home, or
Second home

You must be legally responsible for repaying the loan to deduct the mortgage interest. Also, the interest must be paid on a debt that is an acquisition indebtedness.

You can increase your mortgage interest deduction by making extra mortgage payments in the year. For example, if you pay your January mortgage payment in December, you’ll have one extra month’s interest to deduct. However, you can deduct only what qualifies as home mortgage interest for that year. This might work in your favor when it comes to points.

More qualified mortgage interest details

You can fully deduct most interest paid on home mortgages, if all the requirements are met. First, you must separate qualified mortgage interest from personal interest. Mortgage interest is usually deductible, but personal interest isn’t.

The deduction for mortgage interest is allowed only for acquisition debt. A home mortgage is also called acquisition debt, these are debts that are:

Used to buy, build, or improve your main or second home, and
Secured by that home.

You can fully deduct home mortgage interest you pay on acquisition debt if the debt isn’t more than these at any time in the year:

$750,000 if the loan was finalized after Dec. 15, 2017
$1 million if the loan was finalized on or before Dec. 15, 2017

These limits are halved if you’re married filing separately.

For after years 2017, you can’t deduct the interest you pay on home equity loans or home equity lines of credit if the debt is used for something other than home improvements. This includes things like using it to pay for college tuition or to pay down credit card debt.

Ex: In 2015, Chris bought his main home for $500,000. Four years later, he owed $400,000 on the original mortgage and took out a $60,000 home-equity loan. He used the money to build a sunroom and install an indoor pool. His home is now worth $700,000. He then took out another $130,000 home equity loan and bought a sailboat.

On his 2020 return, he can deduct the home mortgage interest he pays on:

$400,000 left on the original mortgage (acquisition debt)
$60,000 sunroom and pool loan (acquisition debt)

He can’t deduct any interest related to the home equity loan for the sailboat.

Splitting the home mortgage interest deduction

What if you share a mortgage with another person? How do you split the home mortgage interest deduction with your spouse? You can each split the mortgage interest you actually paid, as long as the other requirements are met. If one of you doesn’t itemize deductions, the other can’t deduct the full amount of the mortgage interest unless they actually paid it.

Mortgage interest deduction exceptions

Here are some exceptions to the home mortgage interest deduction:

If a first or second home is used for both personal and rental use. In this case, you would allocate the deduction limited to the part of the home allocated for residential living or follow the special variation home rules for the second home.
If part of your home is used as a home office, then that portion must be allocated as a business expense and isn’t eligible for a home mortgage interest deduction on Schedule A (Form 1040), Itemized Deductions, but may be eligible for a business deduction.

Help with the mortgage interest deduction

If you’re looking for more hands-on tax guidance on claiming the mortgage interest deduction – or other valuable tax deductions, H&R Block can help. Whether you make an appointment with one of our knowledgeable tax pros or choose one of our online tax filing products, you can count on H&R Block to help you.

Are late charges on mortgage deductible?

You can deduct as home mortgage interest a late payment charge if it wasn't for a specific service performed in connection with your mortgage loan. Mortgage prepayment penalty. If you pay off your home mortgage early, you may have to pay a penalty.

Is mortgage payment a deductible expense?

Only the 'use of home as an office' from the interest portion of your mortgage is a taxable expense.

How much of your mortgage interest is tax

Taxpayers can deduct the interest paid on first and second mortgages up to $1,000,000 in mortgage debt (the limit is $500,000 if married and filing separately). Any interest paid on first or second mortgages over this amount is not tax deductible.

Is mortgage interest tax

Yes, mortgage interest is tax deductible in 2021 and 2022 up to a loan limit of $750,000 for individuals filing as single, married filing jointly, or head of household. If married but filing separately, the amount is $375,000 each.