Interest Expenses

All interest paid on qualified residential mortgages that do not exceed $750,000 (including points paid to obtain a mortgage), interest on home equity loans (as long as they are used to buy, build or substantially improve the taxpayer’s home that secures the loan), and business debt is tax-deductible based on a formula under the Tax Cuts and Jobs Act of 2017. With certain limitations, you may also deduct interest on loans used for investment purposes. Interest expenses related to certain passive activities (trade or business activities in which you do not materially participate) may be deductible, as well. You are allowed to deduct these interest expenses as long as they are paid during the tax year on a valid debt. Remember, you cannot deduct interest paid on credit cards or loans for consumer items, such as appliances and cars, nor can you deduct interest paid on a loan used to purchase tax-exempt securities.

Student Loan Interest

Up to $2,500 of interest on student loans incurred during the year may be deducted. Since this is an “above-the-line” deduction, even non-itemizing taxpayers benefit. The loans must be used for qualified higher education expenses, such as tuition, fees, room, board, and books. If you are in a higher tax bracket, you may not be eligible for this deduction because of the phase-out rules. For more information click here.