How Much of My Mortgage Payment is Tax Deductible?
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Updated for tax year 2023.
If you’re a homeowner and a taxpayer, you’ve probably heard about the mortgage interest deduction. But exactly how much of your monthly mortgage payment is tax deductible, according to the IRS?
The short answer is more than you might think, but maybe not as much as you might hope. Here’s a breakdown.
At a glance:
- You can write off certain parts of your mortgage payment, like interest and property taxes, but not your entire mortgage payment.
- The deductions discussed below are typically only available as itemized deductions.
As a homeowner, how much of my mortgage payment can I write off when filing my tax return?
Depending on how your mortgage is set up, your monthly payment likely includes more than just your house payment, such as principal, interest, taxes, and insurance (also known as PITI). Let’s look at each of these categories to see whether there’s a deduction that can lower your taxable income:
Principal: no
The principal is the total amount you borrow from the lender. Your principal is not deductible. The portion of your house payment that goes toward the principal is generally smaller during the first years of the mortgage term but increases as the term progresses. This is because you pay more interest in your mortgage term’s first years. Over time, you will pay less interest and more in principal as your loan amount decreases.
Interest: yes
Mortgage interest payments are deductible, but only if you itemize your deductions. The IRS has different limits on how much interest you can write off for a mortgage loan, depending on when you took out the loan. You can deduct mortgage interest paid on up to $1 million for loans taken out on or before Dec. 15, 2017, or up to $750,000 for loans taken out after that date.
IRS Publication 530, Tax Information for Homeowners, has some great information about the home mortgage interest deduction. For the interest to qualify for a tax deduction, it needs to be on a loan secured by either your main home (primary residence) or second home.
At tax time, your mortgage lender will send you a statement, Form 1098, that outlines how much you paid in principal and interest. You should report that information on your tax return.
Home equity loan interest: no
Unfortunately, you cannot deduct the interest on a loan secured by your home for tax years 2018 through 2025 unless the funds were used to buy, construct, or make significant improvements to your home.
Real estate taxes: yes
Property taxes on your home and its land can be deducted. You likely paid property taxes at closing if you bought your home during the tax year. Your closing statement should have the amount you paid. Generally, this is the only deductible part of your closing costs.
If you paid local taxes to your county, city, or both during the tax year, your state tax authorities should send you a statement of how much you paid on Form 1098 in Box 4. When filing your federal income tax return, you can deduct property taxes paid on Schedule A (Form 1040) line 5b. Like the mortgage interest tax deduction, real estate taxes can only be written off as an itemized deduction.
Insurance: no
Homeowners insurance protects your house and its contents from fire, wind, and other specified perils. Your mortgage company requires you to purchase coverage, but the premiums — often bundled into your monthly mortgage payment — are not deductible.
Title insurance is a policy that guarantees the title for a piece of property is valid. Your lender often requires it, but it is also not deductible.
Most lenders require private mortgage insurance, or PMI when a buyer cannot make a down payment of at least 20% of the home purchase price. This coverage protects the lender in case you default on the loan. PMI used to be deductible, but you can no longer deduct PMI in tax year 2023.
Mortgage insurance premiums are also no longer deductible for premiums paid after Dec. 31, 2021.
Outlook for coming tax years
You can likely expect the deductions and limitations we listed above to hold true through tax year 2025. The $750,000 principal limit on the home mortgage interest deduction was put in place by the Tax Cuts and Jobs Act (TCJA) back in 2018, as was eliminating deductible interest on home equity loans up to $100,000.
If new legislation is not passed, the mortgage interest deduction loan limit will revert back to $1 million after 2025.
Claim homeowner tax deductions with TaxAct®.
As a homeowner, you can benefit from tax deductions on mortgage interest and property taxes, but there are limitations, and you must itemize to take advantage of these tax benefits. It usually only makes sense to itemize if your itemized deductions outweigh your standard deduction.
Thankfully, it’s easy to claim either type of tax deduction when you file with us at TaxAct. As you input your information, we’ll do the calculations behind the scenes and let you know which method would be more beneficial to you — claiming the standard deduction or itemizing your deductions.
More to explore:
File your taxes with confidence.
Your max tax refund is guaranteed.
