The Mortgage Interest Deduction Can STILL Help Homeowners!
Sr. Loan Officer
Chris Carter
Published on January 5, 2021

The Mortgage Interest Deduction Can STILL Help Homeowners!

What is the mortgage interest deduction?

Verify my mortgage eligibility (Jan 25th, 2021)

Buying a home is a proven method of wealth-building; you’ll build equity as you pay off your loan and the home grows in value. But there’s another financial benefit for prospective homebuyers. Come tax time each year, you might qualify for the mortgage interest deduction.

Always consult a tax professional before filing, but for some homeowners, the mortgage interest tax deduction can reduce their taxable income by thousands of dollars. However, tax law changes over the past few years have led to a decrease in the number of Americans who claim the mortgage interest deduction.

Whether you own a home now, or you want to own a home, here’s what you should know.

Verify my mortgage eligibility (Jan 25th, 2021)

Who Gets The Mortgage Interest Deduction?

The Tax Cuts and Jobs Act of 2017 changed the rules for the mortgage interest deduction.
Since 2017, if you take the standard deduction, you cannot deduct mortgage interest.

For the 2020 tax year, the standard deduction is $24,800 for married couples filing jointly and $12,400 for single people or married people filing separately.

Verify my mortgage eligibility (Jan 25th, 2021)

But if you use itemized deductions instead of claiming the standard deduction, you can deduct the interest you pay each tax year on mortgage debt. This includes any mortgage loan used to buy, build, or improve your home.

What Are The Deduction Limits

The amount of mortgage interest you can deduct depends on the type of home loan you have and the way you file your taxes. The amount of mortgage interest you can deduct depends on the type of home loan you have and the way you file your taxes.

Verify my mortgage eligibility (Jan 25th, 2021)
  • If you are single or married and filing jointly, and you’re itemizing your tax deductions, you can deduct the interest on mortgage debt up to $750,000
  • If you are married and filing separately from your spouse, you can deduct interest payments on mortgage debt up to $375,000 each tax year
  • For mortgages taken out prior to 2018, the rules are a bit different.
  • For any home loan taken out on or before October 13, 1987, all mortgage interest is fully deductible
  • For home loan taken out after October 13, 1987, and before December 16, 2017, homeowners can deduct interest on mortgage debt up to $1 million (or $500,000 if married and filing separately)
  • The $1 million limit also applies to homeowners who entered a binding purchase agreement between December 16, 2017, and January 1, 2018

You can deduct interest payments on home equity loans and lines of credit, too, as long as the debts were used to pay for home improvements or to purchase or build your home. If you have a home equity loan or line of credit and the funds were NOT used to buy, build, or substantially improve your home, then the interest cannot be deducted.

You can deduct interest payments on home equity loans and lines of credit, too, as long as the debts were used to pay for home improvements or to purchase or build your home.

How Does The Mortgage Interest Deduction Help You?

Verify my mortgage eligibility (Jan 25th, 2021)

Writing off home acquisition debt tends to help homeowners with higher incomes. That’s because high-earning homeowners typically have larger mortgage balances and are more likely to buy a second home or vacation property– both of which increase tax-deductible mortgage interest payments.

This means their home mortgage interest is more likely to exceed the federal income tax’s new, higher standard deduction of $24,800 for couples filing jointly or $12,400 for individual tax filers.
Real estate agents and home builders still tout this tax deduction as an incentive to buy a home. They like to claim that it increases the homeownership rate and helps people transform from renters to homeowners.

However, thanks to the new standard deductions created by the 2017 Tax Act, a larger share of homeowners will not itemize their taxes and thus won’t be able to deduct mortgage interest.

Verify my mortgage eligibility (Jan 25th, 2021)

Should You Claim The Mortgage Interest Deduction?

Remember, you can take the mortgage tax deduction only if you itemize your taxes. And that’s only worth doing for taxpayers whose write-offs exceed the standard deduction.
For example, say you and your spouse own a home with a $315,000 mortgage loan. Your itemized deductions might look something like this:

  • Mortgage interest: $9,500
  • Property taxes: $3,000
  • Charitable donations: $2,000

Your total itemized deductions come out to $14,500. In this case, as a couple filing jointly, you’d want to take the $24,800 standard deduction because it far exceeds your itemized deductions.
But if you were a single homeowner with the same itemized deductions — or a married one filing separately — you’d want to itemize. That’s because the sum of your itemized deductions is greater than the standard deduction of $12,400.

Verify my mortgage eligibility (Jan 25th, 2021)

Consult a professional tax advisor

As with any major decision, consult a professional when deciding how to file taxes. A licensed tax advisor can review your situation and let you know how to deduct mortgage interest – or if you should at all.

Only you and your tax professional can answer this question because the answer depends on your unique situation and your broader financial life. However, unless you itemize deductions, you can’t claim the home mortgage interest deduction anyway. In that case, the tax deduction should not affect your home buying and mortgage paying decisions.

Verify my mortgage eligibility (Jan 25th, 2021)

What are today’s mortgage rates?

Mortgage and refinance rates repeatedly set new record lows in 2020. With such low rates, mortgage payments are more affordable than ever. Homebuyers have not needed tax incentives to encourage buying or refinancing.

But if you do decide to use it, the mortgage interest deduction is a nice perk, and yet another way homeownership can bolster your personal finances.

Show me today's rate (Jan 25th, 2021)
Sr. Loan Officer
Chris Carter Sr. Loan Officer
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(916) 794-8042

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