Mortgage Tax Deduction Calculator

What Is the Mortgage Interest Deduction Limit?

Before the Tax Cuts and Jobs Act (TCJA) of 2017, homeowners could deduct up to $1 million from their taxable income. After the passing of this act, the limit dropped to $750,000 for couples filing jointly. You can deduct up to $375,000 each if you and your spouse file separately.

Types of Home Mortgage Interest Deductions

There are several situations in which you can apply a home mortgage interest deduction, like:

Interest on a Primary Residence

You can deduct money that you put toward buying or building your primary residence with a home mortgage interest deduction.

Interest on a Second Home

If you have a second home, you can deduct mortgage interest from this one as well. You can only use the mortgage interest deduction for a second home, not a third or fourth. However, you may be eligible to change which property qualifies as your second home so you can deduct from a house with a higher mortgage instead.

Interest From a Refinance

When refinancing your mortgage, you can use the portion based on the remaining principal from the loan you used to purchase your home as a deduction. If you have grandfathered debt, this also qualifies for mortgage interest deduction limits if your refinance amount is less than the principal.

The deduction process is more intricate if you accept additional debt in situations like a cash-out refinance. In this situation, the additional debt would only be eligible for deductions if you used it to improve your home, such as renovating the kitchen or bathroom.

Interest on Qualifying Home Equity Loans

You can deduct your home equity loan if you use it to build, buy or enhance your home. This loan is not tax deductible if you use it for other purposes, like buying a car or consolidating debt.

Interest on Mortgage Points

A mortgage point is a prepaid interest payment a homeowner completes at closing to get a lower interest rate for the loan term. While this payment is tax deductible, you cannot deduct the total amount during the year you complete the payment. Instead, you will deduct the payment over the life of the loan.

For example, if you paid a $4,000 mortgage point for a 10-year loan, you would deduct $400 on each tax return throughout your loan term.

Fees and Penalties From Late Payments

Your lender may charge you a fee if you pay off your loan early. The positive of this charge is that you can deduct it from your taxes along with any late payment fees.

Home Acquired During the Year

Generally, if you acquire a home in a situation where the house is your inheritance, you can start deducting interest from your mortgage on your closing date. You can also deduct tax from a home you acquire in a divorce.

How to Calculate Your Mortgage Interest Deduction

To calculate your mortgage tax deduction, divide your maximum debt limit by the remaining balance on your mortgage. Then, multiply that result by the interest paid to find your deduction.

For example, say your mortgage is $2 million. Since the current deduction limit is $750,000, you will divide $750,000 by $2 million to get 0.375. You will then multiply what you pay in interest for the year by 0.375 to get the total amount you can deduct that year.

What Homeowner’s Expenses Aren’t Tax Deductible?

As you complete your tax return, make sure you do not deduct the following items:

• Home repairs
• Fees from homeowner or condominium association membership
• Homeowners insurance
• Hazard insurance
• Internet or Wi-Fi service
• Hazard insurance
• Forfeited deposits or down payments
• Title insurance
• Closing costs, except for mortgage points and prepaid real estate taxes
• Utilities