Mortgage Interest - Business Use of a Home
There are specific rules for how the IRS treats mortgage interest when a home is used for business purposes.
Specicially, in regard to business use of the home, home mortgage interest is broken into two categories.
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Home Mortgage Interest – Which is the amount of the interest that would be allowed on Schedule A taking into consideration the acquisition debt (and prior to 2018, the equity debt) limitations. Do not include mortgage interest on a loan that did not benefit the home, such as an equity loan used to buy a car, pay tuition expenses, or pay off credit card debts.
The Taxpayer Certainty and Disaster Tax Relief Act of 2019 retroactively reinstated the mortgage insurance premium deduction available as an itemized deduction that had expired after 2017. Therefore, for years 2018 through 2021, mortgage insurance premiums paid that are attributable to the home in which the business is conducted and that would otherwise be deductible on Schedule A are includible as part of the mortgage interest deduction for the home office deduction.
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Excess Home Mortgage Interest– This is mortgage interest that is not deductible on Schedule A. Even though this interest is not deductible on Schedule A, for self-employed taxpayers, the home-use prorated amount is included with the other expenses attributable to business use of the home. Its deductibility is subject to the home office gross income limitation and unused amounts are included in the carryover. For employees, none of the excess home mortgage is deductible, and the business percentage of excess mortgage interest is not included as part of expenses when figuring the expense carryover.