How to Avoid the Mortgage Interest Tax Deduction
- 1). Understand what the mortgage tax deduction is. With few exceptions, you can reduce your taxable income by the amount of interest you paid on a mortgage. There is no threshold limit on the tax deduction that must be met before you can deduct it. It is a dollar-for-dollar reduction. For the mortgage to qualify, it needs to have been taken out before October 13, 1987 (grandfathered debt). If it was taken out after that date, it can still qualify only if the qualified debt during the tax year does not exceed $1 million and only if throughout the tax year the mortgages totaled $100,000 or less and totaled no more than the fair market value of your home reduced by grandfathered debt.
- 2). Don't use the deduction. If you're seeking to eliminate the deduction, the easiest way would be to simply not take the deduction. You can do this by leaving the line on the Schedule A empty, by not itemizing your deductions or by filing a Form 1040A or Form 1040 EZ. If you don't use the deduction, you have eliminated it from your tax form.
- 3). Pay off the mortgage. Another simple way to eliminate the mortgage deduction is to eliminate the source of the deduction. In other words, pay off the mortgage. If the mortgage is paid off, it is not generating deductible interest.
- 4). Pay for the house with unsecured debt. A mortgage is generally secured debt, which is debt that is backed up by the home that has been mortgaged. If the debt is not secured by the house or it is a wraparound mortgage, the debt is not secured and therefore the interest paid is not eligible for the home mortgage interest deduction.
- 5). Purchase an unqualified home. For the home mortgage interest deduction to apply to your home, the home itself must be qualified. It must be a first or second home. It can be a house, condominium, cooperative, mobile home, house trailer or boat, but it must have a sleeping area, cooking facilities and toilet facilities. So you can eliminate the deduction by purchasing a third home or a house without one or more of the necessary facilities.
