How to Understand and Navigate Mortgage Tax Deductions
For many homeowners, the benefits of homeownership extend beyond building equity and enjoying a space of your own—there are also valuable tax advantages. One of the most significant is the mortgage tax deduction. Understanding how these deductions work can help you maximize your savings at tax time and make more informed financial decisions throughout your homeownership journey.
In this post, we’ll explain which parts of a mortgage may be tax-deductible, who qualifies, and how to take advantage of these deductions when filing your taxes.
What Is a Mortgage Tax Deduction?
A mortgage tax deduction allows homeowners to deduct certain mortgage-related expenses from their taxable income, reducing the total amount of tax they owe. The most common of these is the mortgage interest deduction, but other related deductions may apply depending on your specific circumstances.
What Mortgage Costs Are Tax-Deductible?
Here’s a breakdown of the primary mortgage-related deductions that homeowners may be eligible for:
1. Mortgage Interest
The most well-known and widely used deduction is for mortgage interest. This includes the interest you pay on:
Primary residence mortgages
Second homes (with limitations)
Home equity loans and lines of credit (if used for home improvements)
Limitations:
As of 2024, you can deduct interest on up to $750,000 of mortgage debt (or $375,000 if married filing separately) for homes purchased after December 15, 2017. Homes purchased before this date may still qualify for the previous $1 million cap.
2. Points Paid at Closing
If you paid discount points to lower your interest rate when purchasing or refinancing your home, those costs may be tax-deductible—either fully in the year you paid them or spread out over the life of the loan.
Tip: The IRS generally allows you to deduct points in full the year they are paid if the loan is for your primary residence.
3. Property Taxes
While not part of your mortgage itself, property taxes paid through your mortgage escrow account are deductible—up to a combined limit of $10,000 ($5,000 if married filing separately) for state and local taxes (SALT).
4. Mortgage Insurance Premiums (MIP or PMI)
If you’re paying private mortgage insurance (PMI) on a conventional loan or mortgage insurance premiums (MIP) on an FHA loan, those payments may be deductible—although this deduction has been subject to periodic renewal by Congress and may not always be available.
What’s Not Deductible?
While several mortgage-related costs are deductible, others are not, including:
Principal payments
Homeowners insurance premiums
Extra payments toward principal
Most closing costs (other than points)
HOA dues and utilities
How to Claim Mortgage Deductions
1. Itemize Your Deductions
To take advantage of mortgage-related deductions, you must itemize your deductions using Schedule A (Form 1040). If your total itemized deductions don’t exceed the standard deduction, you won’t benefit from itemizing.
Standard Deduction for 2024 (for reference):
$14,600 for single filers
$29,200 for married couples filing jointly
$21,900 for heads of household
2. Get Your Mortgage Interest Statement (Form 1098)
Your lender will send you a Form 1098 each year if you paid $600 or more in mortgage interest. This document outlines:
Total mortgage interest paid
Mortgage insurance premiums
Property taxes paid through escrow (in some cases)
Keep this form for your tax records and use the figures when filling out your Schedule A.
3. Consult a Tax Professional
Tax laws change frequently, and there may be additional state-level deductions or credits available. It’s wise to consult a tax advisor or CPA to ensure you’re maximizing your benefits and staying compliant.
Benefits of Understanding Mortgage Deductions
Lower your taxable income, resulting in a smaller tax bill or larger refund
Maximize the financial advantages of homeownership
Make informed refinancing or home improvement decisions, knowing how deductions may be impacted
Final Thoughts
Navigating mortgage tax deductions doesn’t have to be complicated. By understanding what’s deductible and keeping accurate records, you can make the most of the tax benefits associated with your mortgage. As always, a tax professional can help you apply these rules to your unique situation.
At [Your Company Name], we’re not just here to help you secure the right mortgage—we’re here to support you for the long haul. If you have questions about your mortgage interest statement or how refinancing may impact your deductions, we’re just a phone call away.