- To qualify for the mortgage tax write-offs, your home must secure the loan and the funds from the loan must have been used to purchase, build or improve the home. You can use mortgages from both your primary home and one second home to qualify for the deduction. A second home only counts if you don't rent it out, or if you rent it out but use it for the greater of two weeks or 10 percent of the time it is rented during the year.
- Most closing costs, such as the appraisal fee, origination fees or origination points and inspection cost cannot be written off your taxes. However, you can write off the costs of discount points, sometimes referred to as prepaid interest. The amount of this deduction varies depending whether you are taking out a new mortgage or refinancing. If taking out a first mortgage, all of the prepaid interest can be deducted immediately. However, if you refinance, you must spread out the deduction over the mortgage repayment period.
- Mortgage insurance premiums can also be written off your income taxes if you took out your mortgage after 2006. Mortgages taken out before 2006 do not qualify for this deduction. Mortgage insurance premiums include FHA costs, VA costs and private mortgage insurance levied by lenders. However, as of 2011, your modified adjusted gross income cannot exceed $100,000 ($50,000 if married filing separately) to claim this write-off.
- To write off your mortgage costs on your federal income taxes, you have to itemize your income tax deductions when you file. Doing so requires you to use Form 1040 for your tax return. On Schedule A, the itemized deduction form, report both the mortgage interest paid, any discount points you can deduct and eligible mortgage premiums on the appropriate lines in the "Interest You Paid" section. These amounts, combined with any other itemized deductions, reduce your annual taxable income.
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