Mortgage Tax Deduction Calculator

How Much of a Tax Deduction Can You Receive through Your Mortgage?

One of the few exciting things about filing your taxes is the chance for tax deductions or qualifying expenses you can subtract from your taxable income. As a homeowner with a mortgage, your mortgage interest tax deduction is a great tax incentive that can save you thousands each tax year.

With the mortgage interest deduction calculator, you can get an idea of exactly how much you’ll be able to deduct from your taxes each year through your mortgage. Contact Homesite Mortgage if you have questions about how much you could save in tax deductions through your mortgage.

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

Mortgage Tax Deduction Calculator Definitions

  1. Total Home Loan Amount: This is the total amount of the loan you borrowed to purchase your home. Take note that this doesn’t include the down payment. If you bought a $200,000 home and made a 20% down payment of $40,000, your total home loan amount will be $160,000.
  2. Annual Interest Rate: our annual interest rate is the interest rate charged on top of your loan amount. The lower your annual interest rate, the lower your monthly mortgage.
  3. Term of Loan: A loan term is how long you will repay your mortgage. A 30-year mortgage means you’ll make mortgage payments for 30 years and the same goes for a 15-year mortgage.
  4. Savings: The chart of savings show how much you can expect to deduct from your taxes each year. The deduction amount decreases each year because the deduction comes from the interest you’re paying on the loan. The longer you’ve been paying off your mortgage, the more you’re paying off the principal of the loan, as opposed to interest. In the initial years of your mortgage, your monthly payments are largely going toward interest, which is why the deduction amount is so high at the start of the chart.
  5. Tax Deduction: A tax deduction is an amount of money that can reduce your total income taxes. Because what you pay in taxes depends on your income, you will likely have to pay less in income tax if you can lower your total income through deductions such as your mortgage. Use the mortgage tax deduction calculator to see how much you potentially see in tax deductions solely with your mortgage.

Mortgage Tax Deduction Calculator FAQs

What is allowed to be used as a deduction?

You can deduct qualified home mortgage interest. Additionally, you can deduct mortgage insurance from the Department of Veterans Affairs or Rural Housing Service (frequently referred to as the funding fee or guarantee fee). Contact your mortgage insurance provider to determine the amount available to deduct.

Since we are a Licensed Mortgage Lender only and not a certified public accountant, you will want to ask your CPA to verify what deductions personally you are eligible for.

Can I deduct mortgage interest from my taxes if I rent out my second home?

In the situation of renting out a home, you must personally use the space for 14 days or 10% of the number of days you rent out the space (whichever figure is larger) in order to take advantage of tax deductions on your second home. If you don’t meet the required days, the home is not treated as a second home, but as a rental property.

Who is allowed to take the tax deduction for a mortgage?

Whoever the primary borrower is to the home loan will be the one to take the tax deduction. You are the primary borrowers if you and your spouse both signed the loan. If you are helping a family member with their mortgage payments, you can only deduct the interest from your taxes if you co-signed the loan.

What counts as mortgage interest on my taxes?

Mortgage interest can come from several sources, not just the mortgage of your primary residence. In addition to your primary mortgage, you can deduct mortgage interest from your taxes for a second home, a line of credit or a home equity loan.