How Much Of My Mortgage Payment Is Tax Deductible?
For decades, the home mortgage interest tax deduction has been used to entice people into buying a home. Basically, homeowners can benefit from a tax deduction for owning their homes. However, at the end of 2017, new legislation changed the rules for deducting mortgage costs. Below we look at how much of your home mortgage is tax-deductible.
Mortgage Interest Deduction and Itemization
As a homeowner, you can deduct the interest paid on your mortgage. You can also deduct points paid to lower your interest rates. However, to qualify for these deductions, you must submit an itemized tax return. If you itemize when you file your taxes, you lose the standard deduction.
According to Investopedia, to qualify for this deduction, “homeowners must itemize their deductions when determining their income tax liability. Itemizing provides an opportunity to account for specific expenses, including mortgage interest, property taxes and medical expenses.”
The Tax Cuts and Jobs Act
Formerly known as the Tax Cuts and Jobs Act (the 2017 Republican tax reform bill), ‘An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018’ modifies the permissible deduction for home mortgage interest.
This 500-plus page bill reduces the interest deduction from $1 million (500K for married taxpayers filing separately) to $750K ($375K for married taxpayers filing separately). There is no tax deduction for home equity loans.
This change only applies to people who take out mortgages between December 15, 2017, and December 31, 2025. Mortgage debt before December 15, 2017, is grandfathered in and subject to the former limit ($1 million). The bill also reduces the $10,000 cap on SALT (state and local tax) deductions.
Lastly, the standard deduction has increased, almost doubling. Below are the increases for each category of tax filers:
Because of these increases in the standard deductions, some people may find it more advantageous not to itemize for mortgage costs, but to simply take the standard deduction.
Trust the Connecticut Real Estate Experts
BCZ Homes knows the Connecticut cities, towns, and neighborhoods where you want to live. As the local experts, we can help you find your next home. Or if you want to sell your home, we buy homes for cash in almost any condition. To learn how BCZ Homes can help, call 475-266-6999 or visit BCZhomes.com today.
Disclaimer: BCZ Homes is a not a CPA firm. We are not tax specialists. All information provided above is intended for informational purposes only and is not intended as professional advice. Consult a CPA or tax professional for the most accurate information. The IRS also offers assistance through its Interactive Tax Assistant tool. For extensive details on deducting home mortgage interest, read IRS Publication 936: Home Mortgage Interest Deduction.
Paying Taxes – Photo by CafeCredit under CC 2.0
Homeowners – learn how you can benefit from a tax deduction for the interest and taxes paid on your home mortgage.