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What's the difference between the Mortgage Interest Credit and the Home Mortgage Interest Deduction?

The Mortgage Interest Credit and the Home Mortgage Interest Deduction are tax breaks tied to the purchase of a primary residence through use of a mortgage. However, since one is a deduction and the other a credit, they work in fundamentally different ways:

  • Tax deductions reduce your taxable income
  • Tax credits directly reduce the amount of tax that you owe

Credits can be refundable (meaning they reduce your tax liability and any excess can be refunded to you, even if you don’t owe taxes this year or wouldn’t be receiving a refund otherwise) or non-refundable (meaning they can reduce your tax liability but not more than the total amount of taxes you owe for the year).

Home Mortgage Interest Deduction

Go to this section in Credit Karma Tax: Mortgage Interest Paid

The Home Mortgage Interest Deduction is generally available to any homebuyer, regardless of income, who has a secured mortgage (on a qualified home) and itemizes their deductions on the Schedule A.

As a result of the Tax Cuts and Jobs Act of 2017 (2017 tax reform), you may only deduct mortgage interest on up to $750,000 of qualified mortgage debt incurred to buy or improve a first or second residence. It also generally eliminates the allowance of mortgage interest deductions on up to $100,000 of home equity debt.(There are some exceptions for grandfathered debts.)
Source: irs.gov

Mortgage Interest Credit

Go to this section in Credit Karma Tax: Mortgage Interest Credit

The Mortgage Interest Credit is intended to help lower-income people afford home ownership.You may qualify for the Mortgage Interest Credit, (paid per year, up to $2,000) if your state or local Housing Finance Agency issued you a qualified Mortgage Credit Certificate (MCC) when you purchased your main home with a mortgage.
Source: irs.gov

You may be able to claim both the Home Mortgage Interest Deduction and the Mortgage Interest Credit, but you will have to reduce the amount of your deduction by the amount of the credit. Credit Karma Tax will calculate this amount based on your entries.

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