We are newlyweds filing jointly. Can we deduct the interest on both of our mortgages (we each own a home)?

Answer 1

You are allowed to deduct mortgage interest paid on a main home and a second home.

For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home.

Main home. You can have only one main home at any one time. This is the home where you ordinarily live most of the time.

Second home. A second home is a home that you choose to treat as your second home.

Second home not rented out. If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. You do not have to use the home during the year.

Second home rented out. If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. If you do not use the home long enough, it is considered rental property and not a second home.

In order for the total interest to be deductible, total debt on your mortgage/home equity loans cannot exceed $1.1 million. ($550,000 if married filing separately)

Also, if deducting all the mortgage interest subjects you to the alternative minimum tax (AMT), it may be better to file separately. You can prepare your taxes both ways to see which is more beneficial.

Answer 2

To cut to the chase as long as the total mortgage debt is not more than 1 Million dollars you can deduct all of the interest paid on both homes.
This will work for this year and future years as long as they are both personal use residences. If you rent one then it is deducted on the rental schedule.
If the gain is not more than $250,000 you could also sell one and not pay tax on the gain.