Mortgage Interest Deduction.
In plain English
The mortgage interest deduction lets you subtract the interest portion of your home loan payments from your taxable income, lowering the income the IRS taxes. It applies only to interest, not the principal you pay back, and only if you itemize deductions instead of taking the standard deduction. It covers a main home and one second home, up to a limit on how much loan debt qualifies: interest counts on up to $750,000 of home acquisition debt ($375,000 if married filing separately) for loans taken after December 15, 2017, or up to $1 million for older debt. Property taxes are deducted separately under the SALT rules, not here.
01Why it matters
In a mortgage's early years, almost all of your payment is interest, so this deduction can be sizable then, but only if your total itemized deductions beat the standard deduction.
02The math, step by step
Say you paid $14,000 in mortgage interest this year. If you itemize and your interest qualifies, you subtract that $14,000 from your taxable income. In the 22% bracket, that is roughly $3,080 less in federal tax. If the standard deduction is larger than all your itemized deductions combined, you take that instead and the interest does not help.
03What this is NOT
A deduction lowers your taxable income, not your tax bill directly. Deducting $14,000 of interest saves you your tax rate times $14,000, not the full $14,000. And it only matters if you itemize, which fewer people do since the standard deduction grew.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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