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Did You Know That Certain Parts of Your Mortgage Payment Are Tax Deductible?

Kathryn Underwood - Author
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Oct. 28 2022, Published 9:34 a.m. ET

Everyone is looking for ways to save when it’s time to file their tax returns. Although taxes are a longtime fixture in American lives, you don’t want to pay any more than you have to.

One of the biggest aspects of your tax return is your eligible tax deductions. But what tax benefits exist for homeowners — are mortgage payments tax deductible?

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If you rent, you aren't eligible for a tax deduction on rent payments, but homeowners can take advantage of interest tax deductions every year. If you’re making mortgage payments, there’s always the added factor of interest, which can be substantial, especially early in your loan term.

How much mortgage interest can you deduct?

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Fortunately for homeowners, mortgage interest payments are tax-deductible. As Rocket Mortgage explains, a mortgage interest deduction helps incentivize homeownership. You may deduct interest payment amounts made on your primary home and in some cases, on second homes.

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The mortgage interest deduction limit before the 2017 Tax Cuts and Jobs Act was $1 million. However, since that law passed, the limit has been $750,000. That’s for a married couple filing jointly, while the individual limit would be $375,000.

Rocket Mortgage says that in some cases, you can also deduct payments for mortgage points, which are used to reduce your loan interest rate.

Different types of loans may qualify for a mortgage interest deduction.

house loan types
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You can take this interest tax deduction on loans to either buy, build, or improve your home. In some cases, a home equity loan or second mortgage may qualify. After a home loan refinance, you may also be able to deduct the interest paid.

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You can deduct mortgage interest on a rental property as well.

For real estate investors, mortgage interest on rental property qualifies as a tax deductible business expense. You should receive a Form 1098 annually from your mortgage issuer showing that amount.

If you work from home, you can deduct expenses related to your home office.

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Source: Yasmina H Unsplash

The home office tax deduction is available if you use part of your home "exclusively and regularly" as your primary place to conduct business. You'll use Form 8829 to calculate this deductible amount. If you use a detached structure like a barn, studio, garage, or greenhouse for business, that can be a deductible expense.

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How do you decide between a standard deduction and itemized deduction?

One issue to consider is whether your itemized deductions would exceed the standard deduction amount allowed by the IRS. The agency has a standard deduction that simplifies tax-filing with a flat amount.

The flat amounts for standard deductions for the 2022 tax year will be:

  • $12,950 for single

  • $25,900 for married filing jointly

  • $12,950 for married filing separately

  • $19,400 for head of household

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If you take the itemized deduction route, you must provide proof of all deductions including mortgage interest. For some tax filers, the standard deduction is higher than the sum of all eligible itemized tax deductions.

Other tax deductions you may be eligible for include mortgage insurance premiums, prepayment penalties or late payments on mortgages, student loan interest, charitable contributions, and medical expenses.

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Which homeowner expenses aren't tax deductible?

Not all expenses related to buying and owning a home are tax deductible. The following expenses aren't eligible for tax deductions:

  • Homeowners insurance

  • Closing costs/title insurance

  • Moving expenses, except for military members

  • Down payments

  • Interest accrued on a reverse mortgage

If you aren't sure about any tax deductions you may be eligible for or whether the standard deduction is preferable, consulting a tax professional can help.

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