Is Mortgage Interest Tax Deductible?

As tax season rolls around, you may have a number of questions on your mind — including whether your mortgage interest is tax deductible in 2024. The short answer is yes, but whether or not you should take advantage of the deduction depends on your tax situation.

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What Is a Mortgage Interest Tax Deduction?

The mortgage interest tax deduction allows taxpayers to deduct from their taxable income the amount of interest they paid for the year on up to $750,000 of their home loan debt. To use this deduction, you must itemize your tax return, and the mortgage must be for your primary or secondary residence.

“The intent of allowing that deduction is that the government wants to subsidize U.S. taxpayers because homeownership is a quintessential kind of American dream,” says Scott Brillhart, a certified public accountant and partner at Founder’s CPA.

However, as of tax year 2021, about 90% of individuals claimed the standard deduction instead of itemizing their deductions, according to the IRS. But things may change with mortgage rates being higher than they have in past years, says Brillhart. He predicts that more people will be itemizing their 2023 taxes if they paid higher mortgage interest since that may bring them over standard deduction levels.

The good news is if you paid a significant amount of mortgage interest, the ability to deduct that from your taxable income will help you lower your tax bill — or increase your refund, if applicable.

How the Mortgage Interest Tax Deduction Works

The mortgage interest tax deduction has been around for a long time, but there were some recent rule changes when the Tax Cuts and Jobs Act was passed in 2017. For anyone who purchased a home after Dec. 15, 2017, you are allowed to deduct mortgage interest on home loans up to $750,000. So let’s say you purchased a home last year and took a $600,000 mortgage. In that case, any interest you paid is fully deductible.

On the other hand, if you bought a home in 2016, back then the loan cutoff amount was $1 million. So even if you took a $950,000 loan, you could still deduct all of the interest paid.

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What If Your Mortgage Principal Exceeds $750,000?

“If your mortgage principal is above the qualified limit for when your loan was originated, you’ll need to do a computation of what’s allowable,” says Brillhart. In other words, if you took a loan last year for $800,000, you can still deduct interest on up to $750,000 — it just requires some number-crunching to figure out how much that is.

The IRS provides instructions on how to do this, though you might choose to work with a tax professional since it can get complex.

What Qualifies for the Mortgage Interest Tax Deduction?

The mortgage interest tax deduction does have some specifications.

The home must be your primary or secondary residence. In other words, that means you can deduct mortgage interest paid on the home you live in as well as on a vacation home, says Fred Freifeld, certified public accountant for Fiske & Co. in South Florida.

It doesn’t have to be a traditional house. Other types of residences that qualify as a home include a condominium, cooperative, mobile home or a house trailer. “It could even be a boat, but has to have cooking, bathroom and sleeping facilities,” says Freifeld.

Different types of home loans qualify. In addition to a regular home mortgage, other types of home debt can qualify for the interest deduction as long as the loan proceeds were used to make significant home improvements. “For example, if a taxpayer takes out a home equity line and they use it to improve their home, then that will fall under the umbrella of qualified acquisition debt,” says Brillhart. The same goes for home equity loans, second mortgages and refinance loans, as long as the home is used to secure the loan.

Even mortgage points could be deductible. If you bought a new home or refinanced your mortgage and paid mortgage points to lower your interest rate, you may be able to deduct that amount. The IRS has eight criteria you must meet to be able to deduct points, however, so you may want to consult a tax professional.

What Does Not Qualify

Mortgage interest tax deductions do not encompass all home-related debt. Here are some things that are excluded:

Mortgage insurance premiums. At one time, you were able to deduct your mortgage insurance premiums, but that went away with the Tax Cuts and Jobs Act.

Home equity loan interest, depending on how the funds were used. You are not allowed to deduct any home loan interest if the proceeds were used for something other than to “buy, build or substantially improve your home.” So if you took money from your equity to consolidate debt or pay for your child’s wedding, then it is not deductible.

Closing costs. If you purchased a home, any fees paid at closing are not deductible, with the exception of mortgage points if you meet all of the eligibility to claim that.

How to Claim the Mortgage Interest Tax Deduction on Your 2023 Tax Return

If you want to claim the mortgage interest tax deduction on your 2023 taxes, follow these steps.

Decide Whether to Itemize

“If your itemized deductions exceed your standard deduction, then you are eligible to take the mortgage interest deduction as part of that,” says Brillhart. Keep in mind that the standard deductions for 2023 are fairly generous, so you may have to do some calculating to determine if itemizing is the way to go.

2023 Standard Deductions include:

— $13,850 for single filing status or married, filing separately.

— $20,800 for heads of households.

— $27,700 for married, filing jointly.

Compare those figures with your potential itemized expenses, which include up to $10,000 in state and local taxes, mortgage interest, medical and dental expenses, charitable gifts, and casualty and theft losses.

As an example, if you are married filing jointly and your state and local tax expenses are at least $10,000, you made $5,000 in charitable donations, and you paid $15,000 in mortgage interest, then your deductions are higher than the $27,700 standard deduction and you should itemize.

Make Sure You Received Form 1098

This is the mortgage interest statement your lender will send as long as you paid more than $600 in interest. You should have received it in late January, but you can always request a copy or even download one from your online account. Your 1098 forms will contain all of the information you need for your tax return. “If you’ve got a mortgage and an equity line, you would get two different forms,” says Brillhart.

Complete Schedule A

If you are itemizing, you’ll need to complete Schedule A — Form 1040 — which lists all of your itemized deductions including mortgage interest tax.

When Mortgage Interest Tax Deduction Might Not Work

If your itemized expenses don’t total up to more than what you’d get with the standard deduction, then the mortgage interest you paid offers no tax benefit. “With the Tax Cuts and Jobs Act, the standard deduction essentially doubled,” says Brillhart. “So especially people who have lower interest rate mortgages may not be itemizing.”

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