Any amount of the mortgage that is either used for the acquisition of the home or improvement of it is eligible as an itemized deduction. The interest paid on the portion of the mortgage that was not used to acquire or improve the home is considered home equity debt, which is not deductible. Depending on the nature of the improvement, that may or may not be an eligible deduction. It is eligible if it adds to the value of your home or improves the life of the home.
As long as the structural repairs and improvements are completed and paid for within two years from the closing of the loan, you may consider the entire $170,000 deductible. To report this in TurboTax:
- Answer No to Is this the original loan you used to buy your property?
- Answer Yes to Is this loan a home equity line of credit or a refinance of a previous loan
- Answer Yes to Did you take cash out when you got this loan?
- Answer Yes to Have you used the money from this loan exclusively on this home?
Mortgage interest and property taxes are itemized deductions, as well as charitable contributions and medical expenses if you paid more than 7.5% of your gross income on medical expenses in the year. You may take either your itemized deductions or the standard deduction which is based on your filing status, but not both. Once entering all your itemized deductions, TurboTax will determine which is more advantageous to you, but you can also switch back and forth to see the difference.
