Owning a home may be one of the biggest expenses you take on, but it also comes with one of the most valuable tax benefits available: the mortgage interest deduction. This tax break allows homeowners to deduct the interest paid on their home loans, potentially reducing their taxable income and overall tax bill. For some, particularly those with lower incomes and significant deductions, this benefit can even reduce what they owe the IRS to zero.
The amount you save depends on a few factors, including the size of your loan, the interest rate, and how far along you are in your repayment schedule. During the early years of a mortgage, interest makes up a larger portion of your monthly payment. For example, on a median-priced home of $419,200 with a 20% down payment and a 6.8% interest rate, homeowners can pay over $20,000 in interest in the first year alone. That amount, if eligible, could significantly lower your taxable income.
To take advantage of this deduction, however, you must itemize your deductions instead of taking the standard deduction. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. Only about 10% of tax filers itemize, according to TurboTax, so to benefit from deducting mortgage interest, your total itemized deductions — including things like property taxes, charitable donations, and state and local taxes — must exceed those standard deduction thresholds.
Eligibility for the mortgage interest deduction is broad, but there are some limits based on the size and timing of your loan. If you took out your mortgage after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt (or $375,000 if married filing separately). For mortgages originated on or before that date, the limit is higher — $1 million for joint filers or $500,000 for separate filers. These limits apply across a range of loan types, including primary and secondary home loans, home equity loans, and refinanced mortgages.
In order for home equity loans and HELOCs to qualify, the funds must be used to buy, build, or substantially improve the home that secures the loan. If you refinance your mortgage, you can still deduct the interest as long as the new loan doesn't exceed your original balance, unless you're using the additional funds for qualified improvements. Interest paid on mortgage points may also be deductible, assuming your loan falls within the appropriate guidelines.
It's important to note what the deduction does not cover. Payments toward your loan's principal, your down payment, or mortgage insurance premiums do not qualify. To claim the mortgage interest deduction, you must itemize your deductions using IRS Form 1040 Schedule A. The good news is that most modern tax software can guide you through the process, making it easier to ensure you don't leave money on the table.
Understanding the mortgage interest deduction can be key to maximizing the financial benefits of homeownership. If you're eligible, taking the time to itemize your deductions may result in meaningful tax savings, helping to offset the ongoing costs of owning a home.
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