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Mortgage Interest Deduction allows homeowners to reduce their taxable income by deducting the amount paid in mortgage interest. Learn how it can benefit housing and homeownership, check out the IRS rules and guidelines, download ebooks explaining the law, and find out why there is opposition to it.
Mortgage Interest Deduction Basics
How to Claim the Mortgage Interest Deduction on Your Taxes (CNBC, Jul. 15, 2024)
The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, from $6,500 to $12,000 for individual filers, from $13,000 to $24,000 for joint filers and from $9,550 to $18,000 for heads of household.
As a result, the number of taxpayers who choose to itemize their returns and claim the MID has declined precipitously.
To see if it’s worth it for you, add up the interest you paid on your mortgage last year, along with any other deductions you plan to take. If the total is more than the standard deduction, it’s probably worth the effort of itemizing.
Mortgage Interest Deduction: What It Is and What Qualifies (Bankrate, Mar. 25, 2024)
Generally, you claim the mortgage interest tax deduction in the year the interest was accrued. For some costs, such as mortgage points, you can stretch out the deduction over the life of the mortgage.
While almost all homeowners qualify for the mortgage interest tax deduction, you can only claim it if you itemize your deductions on your federal income tax return by filing a Schedule A with your Form 1040 or an equivalent form.
The Mortgage Interest Deduction: Your Guide for The 2024 Tax Year (Rocket Mortgage, Feb. 29, 2024)
“The mortgage interest deduction is a tax incentive for homeowners. This itemized deduction allows homeowners to subtract mortgage interest from their taxable income, lowering the amount of taxes they owe. This deduction can also be taken on loans for second homes as long as it stays within IRS limits.”
Could a Boost in The Standard Deduction Kill the Mortgage and Charitable Deductions? (Tax Policy Center, Jun. 12, 2023)
“For example, if Congress wants to subsidize home ownership at all, it could turn the mortgage deduction into a credit for all homebuyers, not just those who take out big mortgages.”
Mortgage Interest Deduction: What You Need to Know (Mortgage Professional America Magazine, Apr. 18, 2022)
“If you claim the mortgage interest deduction on Schedule A of Form 1040, you will need to itemize rather than take the standard deduction when you file your taxes.”
How Does the Mortgage Interest Deduction Benefit Housing and Homeownership?
These Are the Tax Breaks You Can Get When You Buy a House (U.S. News & World Report, Jul. 2, 2024)
Mortgage interest deduction. This is a deduction for interest paid on mortgage debt, but you will need to itemize your deductions to qualify for this tax break. “Under current law, this applies to loans up to $750,000,” Rubinstein says.
The Tax Benefits of Owning a Home: Must-Know Deductions and Credits (Credible, Mar. 27, 2024)
If you acquired your home prior to Dec. 15, 2017, you can deduct the interest on up to $750,000 if you’re filing jointly and up to $375,000 if you’re filing single.
Mortgage Interest Deductions? Not a Bad Idea After All (Journal of Monetary Economics, Jan. 9, 2024)
Thus, removing homeownership subsidies is likely to be substantially more harmful in these areas, both in the aggregate and for low-income renters in particular. Further, rents in communities across the United States have grown more quickly than incomes over the past two decades, leading to a large increase in the share of cost-burdened renters (Whitney, 2023). If this trend continues, eliminating homeownership subsidies would be even more harmful in the future.
Why Homeownership Should Continue to Be Incentivized by Our Federal Tax Systempdf (Rosen Consulting Group/National Association of REALTORS®, Feb. 2020)
As homeowners build equity the increased wealth leads to greater consumer spending that spurs business activity and provides a positive multiplier effect that creates jobs and income throughout the economy. Every 10% increase in total housing market wealth would translate to approximately $147 billion in additional consumer spending, or 0.8% of GDP, as well as billions of dollars in new federal tax revenue.
Why Is There Opposition to the Mortgage Interest Deduction?
What Any Economist Will Tell You (But No Real Estate Agent Will) (The Washington Post, Jun. 24, 2024) E
The deduction is regressive, benefiting only the small minority of taxpayers (under 10 percent as of 2020) who have enough income to bother itemizing their deductions. Since someone has to make up the lost tax revenue, it's a transfer to the upper class from the middle class; to homeowners in expensive markets from those living in modestly priced locales; and to people who buy the biggest home they can, and mortgage it to the absolute hilt, from those who save for a sizable down payment, buy a sensible amount of house and pay down their loan as quickly as possible.
A Tax Break to Encourage Homeownership Primarily Helps the Wealthy (Marketplace, Jun. 3, 2024)
Still, the vast majority of people don’t benefit from the mortgage interest deduction, and many economists argue there’s not much evidence that the mortgage interest deduction encourages more people to buy homes instead of renting. Instead, there’s evidence it drives up home prices or incentivizes bigger homes.
The Home Mortgage Interest Deduction Reinforces Racial Disparities (Tax Policy Center, Apr. 2, 2024)
We estimate that after the passage of the 2017 Tax Cuts and Jobs Act (TCJA), the average tax benefit of the HMID was $199 across all White families (including those who did not claim it or file a tax return) in 2019. In contrast, the benefit was, on average, $88 for Black families and $66 for Hispanic families. Overall, Black and Hispanic families received just 54 percent and 38 percent, respectively, of the average benefit for all families. White families got 21 percent more than the average.
Is it Time for Congress to Reconsider the Mortgage Interest Deduction? (Bipartisan Policy Center, Nov. 2, 2023)
Among those who claim the MID, higher-income households enjoy a greater average reduction in their tax burden because they tend to have higher-value mortgages and belong to higher tax brackets, both of which translate to larger savings through the MID.
Rules, Forms, & Guidelines from the IRS on Mortgage Interest Tax Deduction
Can I Deduct My Mortgage-Related Expenses? (Internal Revenue Service, Jan. 16, 2024)
“This interview will help you determine if you're able to deduct amounts you paid for mortgage interest, points, mortgage insurance premiums, and other mortgage-related expenses.”
Home Mortgage Interest Deduction—Publication 936pdf (Internal Revenue Service, Nov. 30, 2023)
“This publication discusses the rules for deducting home mortgage interest.”
eBooks &Other Resources
eBooks.realtor.org
The following eBooks and digital audiobooks are available to NARmembers:
The Complete Idiot's Guide to Mortgages (eBook)
The Everything Guide to Mortgages Book (eBook)
Mortgage Confidential (eBook)
Mortgage Myths (eBook)
Mortgage Rip-offs and Money Savers (eBook)
Mortgages 101 (eBook)
Mortgages For Dummies® (eBook)
How to Invest in Real Estate & Pay Little or No Taxes (eBook)
The Home Mortgage Book (eBook)
The Mortgage Answer Book:Practical Answers to More Than 150 of Your Mortgage and Loan Questions (eBook)
Mortgage Management for Dummies (Audiobook)
The Tax Lady's Guide to Beating the IRS and Saving Big Bucks on Your Taxes (eBook)
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