Q I do not understand the mortgage interest that can be used to itemize on my tax return. There seems to be a number of $100,000 that keeps being referred to as a maximum. Does that mean you can count up to $100,000 in mortgage interest payments, or you can only count interest on $100,000 worth of mortgage? …

-M.M., Warwick, R.I.

A. To see if you’re eligible to claim a federal income tax break on the interest you pay on a home mortgage loan, you look at the principal amount of the loan, not at your monthly payments or at the amount of interest or principal you pay.

That’s the summary. Here are some details:

If you claim the “standard” deduction on your federal income tax return – in other words, if you claim a fixed deduction amount (based on your filing status, such as single or married filing jointly) – you can’t claim a tax break for the interest you paid on your mortgage.

But if you “itemize” – in other words, if you list your deductions on a separate sheet (known as Schedule A) accompanying your return – you generally may deduct an unlimited amount of interest.

There are some limits and other points you need to keep in mind. For example:

n “Only interest on debt that is secured by the taxpayer’s principal residence and one other residence is deductible as qualified home mortgage interest,” according to “Concepts in Federal Taxation,” co-authored by University of Rhode Island accounting professor Mark Higgins.

n You generally may deduct all your mortgage interest if the principal amount outstanding on all your mortgage loans doesn’t exceed $1 million.

In other words, the limit (which is actually a bit more complicated than I’ve described here) applies to the principal amount of debt outstanding, not the interest.

Say you borrowed $75,000 to buy your first home.

That’s what gets counted toward the $1 million limit, not the $4,500 or so in interest you might have paid this year on that loan.

n What about interest on home equity loans? In general, that’s deductible, too, (assuming the loan is secured by your home).

Here’s the rule of thumb: You may claim the tax break for interest you pay on home equity debt of up to $100,000.

Remember that the limit applies to the principal amount on the loan, not to the interest you’re paying.

There is another limit you must keep in mind, too.

It generally says that, for interest to be deductible, total debt (including loans you used to buy, build or improve the house, plus home equity loans) can’t exceed the fair market value of the property.

How does that work?

Kevin McCormally, in “Kiplinger Cut Your Taxes,” explains it this way: “If the balance on your mortgage is $100,000 and your home value is just $105,000, then interest would be deductible on no more than $5,000 worth of home equity debt.”

Neil Downing is a Providence Journal staff writer and author of ” The New IRAs and How to Make Them Work for You.”

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AP-NY-12-29-03 0626EST