How much of your monthly mortgage payment can you subtract from your taxes?

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9 min readMar 23, 2023
How much of your monthly mortgage payment can you subtract from your taxes?

Will the interest you pay on your mortgage save you big bucks at tax time? Welcome to your personal finance assistance, where you get the information you need to understand and succeed with money.
Today one of the first things that come to my mind when it comes to home ownership and taxes is the mortgage interest tax deduction. Today I’m going to explain what the mortgage interest tax deduction is, tell you about the requirements to qualify for it, and help you understand whether or not it will affect your tax bill.

You’re about to learn something new about money. First, let’s tackle the question what is the mortgage interest tax deduction? To answer that, it’s important to understand what a tax deduction is in general.

Mortgage Interest Tax Deduction

A tax deduction is a specific amount of money that you subtract from your annual income before you calculate the amount of tax you owe. So if your income was $50,000 per year and you qualified for a $10,000 tax deduction, you would take $50,000 and subtract $10,000, and you would wind up with $40,000 in taxable income.

This is the amount that you would use to calculate how much you owe in taxes. And because taxes are calculated as a percentage of your taxable income, a tax deduction will save you some money come tax time.

Now that you have a good understanding of what a tax deduction is, let’s talk specifically about the mortgage interest tax deduction. When you make your mortgage payment every month, there are two primary components principal and interest.

The principal component goes toward the amount you borrowed for your mortgage. The interest component is an extra fee you need to pay your mortgage lender for the privilege of borrowing their money. At the beginning of each year, your mortgage lender will send you a special tax form called form 1098.

This form will include the total amount of interest fees you paid on your mortgage in the previous year, and as long as you meet certain qualifications, which we’ll talk about next, those interest fees are 100% tax deductible.

In other words, you can subtract the amount you paid in mortgage interest from your income to reduce the amount of taxes you owe. In addition to the interest fees you paid throughout the year, there are several other fees you may have paid that could also be deductible as part of the mortgage interest tax deduction.

If you paid an extra fee because one of your mortgage payments was late, that extra amount could be deductible. So could any penalties you may have had to pay. If you paid off your mortgage early and if you purchased or refinanced your home in the past year, you may have prepaid some interest in the form of mortgage points.

That money could be deductible as well. You might even be able to deduct interest on a home equity loan or a line of credit, provided it was used for certain specific purposes. The point is, you’re not necessarily limited to what you pay an interest every month, so have that conversation with your tax professional about your specific situation.

The interest paid on the first million dollars of a house loan is eligible for a tax exemption thanks to a provision known as the home loan interest deduction, not to be confused with the home improvement tax deduction. Homeowners who bought their homes in the five years prior to the current tax year are eligible to subtract interest on the first $750,000 of their mortgages. If you want to subtract the interest you pay on your mortgage, you have to itemize your deductions on your tax return, which you can only do if you’re a 1099 employee.

Your total amount of money that was spent on mortgage interest during these years can be deducted from your taxable income thanks to a reduction known as the mortgage interest deduction. If you have a mortgage loan, it is important to maintain accurate records because the interest you spend on your home loan may be able to reduce the amount of taxes you owe. Maximum allowable exemption for mortgage interest The Tax Cuts and Jobs Act (TCJA) altered for a particular individual qualified for a tax deduction for home loan interest has a certain limit and establishing a limit on what you may deduct from your home equity loan debt. Depending on the new tax rules, it might be different, especially if you work in the gig economy.

Before the passage of the TCJA, the maximum amount that could be deducted for mortgage interest was one million dollars. At this time, the ceiling is set at $750,000. If you are a single filer, a married couple filing jointly, or the leader of your household, you could save money on the interest you pay on a mortgage of up to $750,000 by submitting your taxes in a certain way. Taxpayers who are married and submitting their returns can subtract up to $375,000 each.

All right, now that you’ve got a good understanding of what the mortgage interest tax deduction is. Let’s talk about how you can qualify to take that deduction. Here’s where things start to get a little bit interesting.

The first requirement is that you own your home and that you have a loan that’s secured by that home. And although this part seems pretty straightforward, the IRS has gone to great lengths to define what exactly constitutes a home.

This is the kind of thing I just love learning about when it comes to taxes. The IR rest tells us that a home must have sleeping, cooking, and toilet facilities. So it doesn’t matter if it’s a single-family home, a condo, a mobile home, a shack in the woods, or even a boat.

As long as you’ve got an area to sleep, an area to cook, and an area to do your business, you’re good. Now, for the loan part, the majority of people just have the traditional mortgage that was used to purchase a property.

So if you’ve got a mortgage for more than $1 million, you can only deduct the interest paid on the first million of it $1 million or less. You’re good. And finally, if you got your mortgage on December 16, 2017, or later.

The limit was cut from $1 million to $750,000. So for a mortgage of more than $750,000, you can only deduct the interest paid on the first 750,000 of it less than seven hundred and fifty K. And I suspect this covers the vast majority of people you can deduct all of your interests.

The third and final requirement is that the mortgage is on your primary residence or your second home. Your primary residence is where you spend the majority of the year living. Pretty easy to understand if you’re fortunate enough to own a second home.

There are special rules about how often you have to occupy that home, depending on whether it’s rented out for part of the year or just sits empty when you’re not there. And if you’re one of the few people who owns more than two homes, I’m sorry to let you know that mortgages on those additional homes would not qualify.

Qualification requirements for the mortgage interest write off

There are a few different kinds of mortgages that qualify for the mortgage interest exemption on your taxes, which have nothing to do with whether you are a sole proprietorship. These are the components of a house loan, which can be used to buy, construct, or improve a property. Although a mortgage is the most common type of credit, a home equity loan or a supplemental mortgage might also qualify. Check to see that the loan satisfies the criteria for eligibility and that the answer to the question requested will be used to secure the loan. If you are the proprietor of a co-op apartment, you are eligible to receive a portion of the interest that you pay toward the overall mortgage of the building. These deductions may include mortgage interest, charitable contributions, medical expenditures, and other types of expenses.

If you want to itemize your deductions, for which you need to know how to file a 1099, you might have to fill out some additional paperwork, including a summary of everyone who contributed to your deductions, as well as records, invoices, and other documents that substantiate them. The interest on a debt secured by a home’s equity A sum of money that is obtained from the equity in your house is referred to as a home equity loan. In order to be eligible for a home equity credit, the money you borrow must be used to either purchase, construct, or enhance your existing residence. You could put some of the money from the mortgage toward paying off your debt, investing in a business, or on something else that has nothing to do with purchasing a home. If you do this, it’s best to free accountant advice.

If the money was used for something else to extract value, like buying a vehicle or paying off credit card debt, then the interest paid on the loan is not tax deductible. Bottom line: You may wish to seek the assistance of a tax practitioner in order to learn more about the tax deductions available for mortgage interest. They are able to provide even more information regarding your loan interest exemption and assist you in selecting what to deduct based on the loans that are appropriate for your current monetary circumstance.

Finally, let’s talk about whether or not the mortgage interest tax deduction will affect you, and what you need to know about the mortgage interest tax deduction is that in order to use it, you’re going to need to itemize your deductions on your taxes.

What this means is that when you file your taxes, you would add up your mortgage interest and any other deductions, like charitable donations and medical expenses, to get your full deduction. The alternative to itemizing your deductions is electing to use something called a standard deduction, a deduction that’s been predetermined by the government and is available to everyone you want to choose, whichever method gives you the larger deduction, which will in turn give you a larger reduction on your taxable income and the tax you owe.

How Much of My Mortgage Payment is Tax Deductible?

How Much of My Mortgage Payment is Tax Deductible?

How Much of My Mortgage Payment is Tax Deductible?

So what it all comes down to is whether your itemized deductions, including your mortgage interest, exceed the standard deduction five or ten years ago. It was usually a slam dunk. The standard deduction was around $6,000 if you were single.

And $12,000 if you were married. So if you had a decent-sized mortgage, the itemized deductions would win every time. But that all changed in 2018 when the Tax Cuts and Jobs Act went into effect. The standard deduction amounts were essentially doubled, to about $12,000 for single filers and about $24,000 for married couples.

To give you an idea of how this compares to mortgage interest, let’s say you were married with a $500,000 mortgage at a 4% interest rate. Multiply $500,000 by 4% and you wind up with $20,000. So even with that massive mortgage where you’re paying over one $600 per month in interest alone, you’re still going to end up taking the standard deduction unless you’ve got some other big deductible expenses.

The Tax Cuts and Jobs Act accomplished the goal of simplifying tax filing by making the standard deduction high enough to be the best option for the vast majority of Americans. The only people who are going to itemize their deductions and use the mortgage interest tax deduction at this point are the wealthiest Americans, the people who can afford to take out a mortgage of $750,000 or more.

And for that reason, I feel that the mortgage interest tax deduction is out of step with its original intentions to help lower and middle-class Americans realize the American dream of owning the place they call home.

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