Most people know they can deduce income taxes for a new home loan, however few know about the intricacies.  This post cannot go into details, and a certified accountant should be used for your particular case.

To deduce the loan from your income tax, the new home must be a residence and the person claiming the deduction must be on the title and loan documents.  Another deduction that can be made on a personal residence in most cases are interest paid on a second home loan. 

Homes purchased or substantially improved after 1987 are limited in terms of loan amounts that can be used for interest deduction.  They cannot exceed $1 million for an individual or couple filing jointly.  Married couple filing separately are only allowed $500,000.

Some Home Equity Loans can be deducted and can be added onto the above mentioned limitations for n additional $100,000, or $50,000 is filing separately.  Home equity loans are not a purchase/improvement loan and is usually a junior one.  Normally, any interest paid on any portion if the loan balances, greater than "fair market value" of the residence is not deductible.  The IRS allows you to use a current lender appraisal to assess a property’s increased value.

Thank you Cardinal Pacific Escrow for this tip.