Mortgage Rates - Can a mortgage be deducted from income tax?

Having a mortgage allows you to lower your taxable income by deducting the amount of mortgage interest you've paid throughout the year. It's important to maintain accurate records, as the interest on your home loan can potentially reduce your tax bill.

In general, you can deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt for your primary home or a second home. If you are married and filing separately, the limit drops to $375,000.

What is the mortgage interest deduction?

The mortgage interest deduction allows you to deduct the interest paid on the first $750,000 of mortgage debt. To claim this deduction, you will need to itemize on your tax return.

If you purchased your home before Dec. 16, 2017, you can deduct the interest paid on the first $1 million of the mortgage ($500,000 if married filing separately).

There is an exception to the Dec. 15, 2017, cutoff: If you had a written binding contract before that date to close before Jan. 1, 2018, and you closed on the house before April 1, 2018, the IRS considers your mortgage to be obtained before Dec. 16, 2017.

An example of a Mortgage interest tax deduction

If you obtained an $800,000 mortgage to purchase a house in 2017 and paid $25,000 in interest on the loan in 2023, you may be able to deduct the entire $25,000 of mortgage interest on your 2023 tax return. However, if you obtained an $800,000 mortgage in the same year, the deduction may be slightly lower. This is because the 2017 Tax Cuts and Jobs Act limited the deduction to the interest on the first $750,000 of a mortgage.

What qualifies as mortgage interest?

IRS Publication 936 provides in-depth information on qualifying mortgage interest, and here's a concise summary for your reference.

• The property eligible for the mortgage interest deduction includes houses, co-ops, apartments, condos, mobile homes, house trailers, and houseboats.
• The property must serve as collateral for the loan.
• Additionally, the property must provide sleeping, cooking, and toilet facilities to qualify for the deduction.
• If you receive a nontaxable housing allowance from the military or a ministry, you can still claim the deduction for your home mortgage interest.
• Moreover, a mortgage taken out to buy out your ex-partner's share of the property in a divorce situation is also considered eligible for the deduction.

For more information about claiming the mortgage interest tax deduction, see IRS Publication 936.

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