Mortgage Interest Deduction: How to Save when Filing Your Taxes

The 2024 tax season is upon us. We want to help remind readers of the tax deductions available for homeowners. Below are a few mortgage deductions homeowners may be able to take advantage of when filing 2023 taxes. As always, please consult with a tax advisor to discuss the benefits of these deductions for your tax return process.

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What is the mortgage interest deductible in 2024?

Essentially, the mortgage interest deduction allows homeowners to reduce your taxable income by the amount you paid in home interest for the tax year. This requires itemizing it on your tax returns. Here is a brief rundown of how this works in the 2024 tax season, and how you can save money on taxes if you pay a mortgage! 

Standard Deduction vs. Itemized Deduction

Standard deductions are set amounts you can deduct from your taxable income when filing your taxes. It is based on your income, age, and filing status. The Standard Income Tax Deductions Amounts for the 2024 Tax Year from the IRS:

Itemized deductions include amounts you paid for state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, and disaster losses. You may also include gifts to charity and part of the amount you paid for medical and dental expenses. You may be able to benefit by itemizing your tax returns if you*:

• Can’t use the standard deduction or the amount you can claim is limited.
• Had large unreimbursed medical and dental expenses.
• Paid mortgage interest or real property taxes on your home.
• Had large “Other Itemized Deductions” (line 16 on Schedule A (Form 1040))
• Had large unreimbursed casualties or theft losses from a federally declared disaster or made large contributions to qualified charities.
• Among others, like student loan interest, US savings bond interest, the adoption credit, foreign earned income, etc.
• Note: Subject to limitations. *

How much mortgage interest is tax deductible in 2024?

The mortgage interest deduction is simply a tax deduction for the interest paid on your mortgage payment. Taxpayers are eligible to deduct the interest paid on the first $750,000 of their mortgage for primary homes, second homes and home equity loans. Additionally, married taxpayers filing separately can each deduct up to $375,000.

However, there are some exceptions: The Tax Cuts and Jobs Act (TCJA) made several significant changes in 2017 to the individual income tax. Specifically, before the alterations made by the TCJA, the interest deduction loan limit was up to $1 million. Moreover, homeowners who purchased a home BEFORE December 16th, 2017, can still deduct interest on the first $1 million of the mortgage or $500,000 if they’re married and filing separately.

Mortgage Interest Tax Deductible Example

For example, imagine you have a $600,000 mortgage and paid $20,000 in mortgage interest during this tax year. You would be able to deduct the full $20,000 of the mortgage interest on your tax return. However, say you have a $900,000 mortgage and bought the home in 2020, (after the 2017 cutoff date), and paid $30,000 in interest. In this scenario, you would not be able to deduct all $30,000 of mortgage interest on your tax return. The amount you could deduct would be a little bit lower as only up to $750,000 of mortgage is deductible for homes purchased after 2017. 

What qualifies as deductible mortgage interest?

To see the whole rundown on what qualifies as mortgage interest, check out the IRS Publication 936. See below with a simple breakdown: 

Mortgage for a primary home: 

• Property must be a house, condo, apartment, co-op, mobile home, house trailer, or houseboat. 
• Home must be collateral for the loan. 
• Required to have facilities for sleeping, cooking, and bathroom. 
• Mortgage to “buy out” partner after a divorce is applicable. 
• Nontaxable housing allowance from military or ministry mortgage interest is applicable. 

Mortgage for a second home: 

• House must be collateral for the loan. 
• If rented out, you must be there more than 10% of the days you rent it out. 

Home Equity Loan

• Can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately).
• Funds from the loan must be used to buy, build or substantially improve the qualified residence.

Are mortgage points tax deductible?

Mortgage points  are a form of prepaid interest on a mortgage loan; therefore, they are deductible. You can choose to deduct points bit by bit over the term of your mortgage, or all at once. If you want to deduct the points all at once, you must meet these eight requirements: 

1. Must be for a primary home.
2. Paying points must be an established practice in the area of the property. 
3. Points are not frequently high. 
4. Points are not for any closing costs. 
5. The down payment must be higher than the points. 
6. Points are computed as a percentage of the loan. 
7. Points are shown in the settlement statement. 
8. The cash method of accounting is used on taxes. 

What is typically not tax deductible? 

• Homeowners insurance 
• Title insurance 
• Settlement costs 
• Deposits, down payments, or earnest money that was forfeited 
• Interest accrued on a reverse mortgage 
• Extra principal payments made on mortgage 

Three Steps to Claiming The Mortgage Interest Deduction in 2024 

1. Obtain Form 1098 from mortgage lender. 

Your mortgage lender will send you a Form 1098 in January or February. This form states how much you paid in mortgage interest and points this tax year. A copy of this is also sent to the IRS. Use this form to determine what to report on your tax return.  Don’t forget form 1098 should also include any real estate taxes paid!

2. Keep detailed records and documentation. 

In your tax return, you will have to prove what you are claiming. There are many situations in which you can claim the deduction, such as an office space or a timeshare. However, this requires more in-depth documentation. Throughout the year, it is best to keep a file with all possible mortgage and property related documentation. 

3. Itemize tax returns. 

To claim a mortgage interest deduction, you will have to itemize instead of taking the standard deduction. If your standard deduction is more than your itemized deduction, you should choose that.

Is it worth claiming mortgage interest on taxes?

Claiming your mortgage interest deduction can save you a lot of money on your 2023 tax returns depending on your situation. Use this mortgage interest deduction calculator to get an idea of what your deduction may be. Furthermore, it’s best to consult with your financial advisor or tax professional so you can get the most out of your 2023 returns.