Housing Loan Tax Deduction: Complete Guide and Benefits

Are you considering purchasing a home and wondering if you can deduct your housing loan interest on your taxes? The good news is that you can, and it can make a big difference in your annual tax bill.

In the US, the Tax Cuts and Jobs Act (TCJA) limits the amount of state and local taxes (SALT) you can deduct, but it does not affect the mortgage interest deduction. This means you can still deduct up to $750,000 of mortgage interest on your primary and secondary homes.

The mortgage interest deduction can save you thousands of dollars on your taxes each year. For example, if you have a $500,000 mortgage with an interest rate of 4%, you could deduct up to $20,000 of interest per year.

To be eligible for the housing loan interest (HLI) deduction, you must be the owner of the dwelling, either as a sole owner, joint tenant, or tenant in common, and ownership must be registered with the Land Registry.

The dwelling must be a separate rateable unit under the Rating Ordinance, situated in Hong Kong, and used wholly or partly as your place of residence in the year of assessment. If the dwelling is partly used as the place of residence, the amount of interest deductible will be restricted accordingly.

You must also pay HLI during the year of assessment on a loan for the acquisition of the dwelling, and the loan must be secured by a mortgage or charge over the dwelling or any other property in Hong Kong. The lender must be an organization prescribed under section 26E(9) of the Inland Revenue Ordinance, such as the Government, a financial institution, or a licensed money lender.

Here are the specific requirements for eligibility:

To be eligible for home loan interest deductions, you need to meet certain conditions. You must be the owner of the dwelling, either as a sole owner, a joint tenant, or a tenant in common, and ownership must be registered with the Land Registry.

To qualify, the dwelling must be a separate rateable unit in Hong Kong. This means it's situated in Hong Kong and meets the requirements of the Rating Ordinance.

The dwelling must also be used wholly or partly as your place of residence in the year of assessment. If it's partly used for residence, the amount of interest deductible will be restricted accordingly.

You must pay home loan interest during the year of assessment on a loan for the acquisition of the dwelling. The loan must be secured by a mortgage or charge over the dwelling or any other property in Hong Kong.

The lender must be an organization prescribed under section 26E(9) of the Inland Revenue Ordinance. This includes the Government, financial institutions, registered credit unions, licensed money lenders, the Hong Kong Housing Society, your employer, or any organization approved by the Commissioner of Inland Revenue.

Here's a list of eligible lenders:

A 20% down payment is typically required for a mortgage, which also allows you to skip the expense of private mortgage insurance (PMI).

Putting down more than 20% would reduce the monthly mortgage payment, making it a more affordable option.

A 20% down payment is a significant upfront cost, but it can save you money in the long run by avoiding PMI fees.

The tax deduction amount and limit for housing loans can be a bit complex, but don't worry, I've got you covered.

The maximum limit for the basic deduction ceiling amount for the year of assessment is $100,000 for 2018/19 to 2023/24, and $100,000 + $20,000 for 2024/25 onwards.

If you're a sole owner of the dwelling and use it exclusively as your place of residence, the HLI that you actually paid in the year of assessment is deductible, subject to a maximum limit as specified for the year.

The HLI is regarded as having been paid by the joint tenants each in proportion to the number of joint tenants, or by the tenants in common each in proportion to his or her share of ownership in the dwelling.

For mortgage interest deduction, you can deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt for your primary home or a second home. If you're married filing separately, the limit drops to $375,000.

If you bought the house before Dec. 16, 2017, you can deduct the interest you paid during the year on the first $1 million of the mortgage ($500,000 if married filing separately).

Here's a summary of the tax deduction limits:

Note that the tax deduction limits may vary depending on your individual circumstances and the specific tax laws that apply to you.

The number of years you can claim home loan interest deduction has changed over the years. With effect from the year of assessment 2012/13, the number of years of deduction for home loan interest is extended from 10 to 15 (not necessarily consecutive) years of assessment.

If you're repaying your home loan under an EMI plan, you're eligible to claim both interest and principal components on your payment. This can help reduce your EMI burden to some extent.

The interest paid up to Rs.2 lakh or the actual amount you've repaid can be claimed as deduction under Section 24 of the Income Tax Act. The deduction on interest can only be claimed when you have possession of the house.

You can claim a maximum of Rs.1,50,000 under Section 80C for the principal amount you pay. This limit is capped at Rs.1,50,000 across all investments under Section 80C.

The number of years of deduction for home loan interest is further extended from 15 to 20 (not necessarily consecutive) years of assessment with effect from the year of assessment 2017/18.

You can claim a deduction of up to Rs.2 lakh each year for interest paid on your home loan, but the total deduction is capped at 20 years.

Here's a summary of the number of years and repayment rules:

Note that the additional 5 years home loan interest deduction is not applicable to the year of assessment prior to the year of assessment 2012/13. However, it will not affect taxpayers' entitlement to the 5 additional years deduction from the year of assessment 2012/13 and onwards.

If you claim a deduction but your assessable income is less than your personal allowances and your HLI is not transferred to your spouse, you won't be regarded as having been allowed that deduction.

Only married persons can nominate their spouse to claim HLI under section 26F of the IRO. This means that if you're not married, you can't make a nomination for your spouse.

The Commissioner issues deduction status notifications to taxpayers who have been allowed the deduction in their own right or who have made nominations under section 26F of the IRO.

Here's a quick rundown of who gets notified about their deduction status:

You'll need to keep track of your receipts for a period of 6 years after the expiration of the year of assessment in which the payments were made, as you may be required to produce them if your case is selected for review.

To claim the mortgage interest deduction, you'll need to gather specific documents, including proof of ownership, loan agreement or mortgage deed, and receipts for repayment of the loan.

You can claim tax benefits at the time of filing your return, but you'll need to include the relevant deductions in your ITR form, such as deductions under Section 80C, Section 24, and Section 80TTA.

Here's a list of the documents you may need to submit to claim tax deduction:

You may also receive a Form 1098 from your mortgage lender, which details how much you paid in mortgage interest and points during the previous year.

In the United States, the Internal Revenue Service (IRS) sets limits on the amount of mortgage interest and property taxes that can be deducted from taxable income each year.

The IRS requires that the mortgage be secured by the taxpayer's principal residence or a second home to qualify for the mortgage interest deduction.

The amount of mortgage interest that can be deducted is limited to the amount of interest paid on the loan, not the amount borrowed.

Homeowners can deduct property taxes on their primary residence and a second home, but only up to a certain limit.

The total amount of mortgage interest and property taxes that can be deducted is capped at $10,000 per year for married couples filing jointly.

The mortgage interest deduction is not available for investment properties or vacation homes.

Homeowners must itemize their deductions on Schedule A of their tax return to claim the mortgage interest deduction.

The mortgage interest deduction is phased out for taxpayers with incomes above $100,000.

If you're married, you and your spouse can claim a deduction for HLI in four different situations. You can elect joint assessment if you both have assessable income chargeable to salaries tax and one of you has income less than the total of allowable HLI and personal allowances.

If one spouse has no salary income, rental income, or profits chargeable to tax, the other spouse can nominate them to claim the deduction. Nominations must be made year by year and the nominating spouse must sign the nominee's tax return to signify their agreement.

Under personal assessment, the allowable HLI is first deducted from the total income of the one who paid the HLI, and any part of the deduction not fully utilised is then set off against the other's total income.

Here are the conditions to meet to avail deductions when repaying the home loan under EMI plan:

If you have multiple home loans, you can avail tax benefits, but the benefits available towards principal repayment are limited to Rs.1,50,000. The interest paid on loan is eligible for deduction up to Rs.2 lakh under Section 24.

As a married person, you have several options for claiming a deduction for HLI. If you and your spouse have assessable income chargeable to salaries tax, you can elect joint assessment to deduct the interest from your aggregate assessable income.

You can claim a deduction for HLI even if your spouse has no salary income, as long as you nominate each other to claim the deduction. This is done under section 26F of the IRO, and nominations must be made year by year.

If your spouse has no salary income but does have other chargeable income, you and your spouse must elect for personal assessment to claim the HLI entitlement. The allowable HLI is first deducted from the total income of the one who paid the HLI.

In the case of joint assessment, any part of the deduction not fully utilised is then set off against the other's total income. However, any excess would not be carried forward for setting off against either one's total income for future years of assessment.

Letting out your property can be a great way to earn some extra income, but it's essential to understand the tax implications. If you decide to let out your property, the interest paid on the loan can be completely claimed as a deduction.

There is no cap on the tax benefit for interest payment even if the house is completed after 3 years for let-out property. You can claim the entire interest paid as a deduction, which can help reduce your taxable income.

Let-out property can also claim deduction for loan taken for repairs, renewal and reconstruction without a limit. This means you can repair or renovate your property without worrying about the tax implications.

Here are some key points to keep in mind:

If you have let out your property, you can also claim the entire interest paid as a deduction, regardless of the completion date. This can help reduce your taxable income and save you money on taxes.

Borrowing from a friend or family member can be a bit tricky when it comes to tax deductions. You won't be able to claim any deductions under Section 80C for the loan repayment itself.

However, you can claim a benefit for the interest payment under Section 24. To do this, you'll need to get a certificate from your friend or family member that shows you paid the interest for the financial year.

A new Section 80EE has been introduced, but it's not applicable for loans from friends or family members. It's specifically designed to promote house ownership and job creation in the construction industry.

To qualify for this benefit, the loan must be taken from a financial institution or housing finance company, not from a friend or family member.