You can calculate your mortgage interest deduction using the calculator available from Bankrate, or by filling out an IRS Schedule A using the information on your mortgage interest statement, according to the IRS. The lender who holds the mortgage sends the homeowner a mortgage interest statement, or Form 1098, at the beginning of each year, indicating the amount of mortgage interest paid in the previous year. IRS Publication 936 contains the instructions and rules for calculating this deduction.
Typically, all mortgage interest is deductible, but there are circumstances in which a taxpayer cannot claim the deduction, explains Forbes. Some general guidelines to determine eligibility are that the taxpayer is the borrower of the mortgage, or holds the deed to the property, and is the one who pays the mortgage. Additionally, a qualified home, which includes the taxpayer's main home and second home, must secure the mortgage, notes the IRS. The deducted interest must be under a specific limit, related to the first $1 million of acquisition debt or $100,000 of home equity debt, as of the tax year. There are also some other items that a taxpayer may include as part of his mortgage interest deduction, such as late payment charges or prepayment penalties.