Reduce your taxable income with the mortgage interest deduction.

What Did The Mortgage Interest Deduction Allow?
  • A mortgage interest deduction allows homeowners to reduce their taxable income by the interest paid on the loan which is secured by their principal residence (or, sometimes, a second home)
  • If a home buyer earned $100,000 a year, paid $10,000 the previous year in interest and claimed the mortgage interest deduction, the IRS would tax only $90,000 of the income (not including additional deductions)
  • The IRS previously allowed deductions on interest for second homes or on home equity loans of $100,000. or less and for mortgages of $1M dollars or less
  • The mortgage interest deduction was beneficial for homeowners within the first five years of their purchase since the majority of the typical conventional mortgage loan monthly payment goes to interest, not principal, during that time.

It is important to discuss possible deductions with your tax advisor or CPA. Tax deductions can change each year and with individuals’ situations, so be sure to consult an expert.

2018 Update To The Mortgage Interest Deduction

New tax reform laws have changed eligibility for the mortgage interest deduction. Now, homeowners can deduct only the interest on up to $750,000 in mortgage debt, lowered from $1M before tax reform was enacted, though existing mortgages are grandfathered in to $1M unless the property is refinanced. Mortgages higher than the cap still get a deduction, but only on the portion of interest related to the first $750,000.

Home equity debt is also affected under the new law. Previously, homeowners were able to deduct interest on up to $100,000 of home equity debt. The law allowed for unrestricted use of the funds, with the interest still being deductible.

Now, homeowners can still deduct interest on this type of debt if it’s used to buy, build, or improve a home and doesn’t increase total outstanding mortgage debt above the $750,000 limit, but can’t deduct if funds are used for other purposes. This law took immediate effect, even on existing home equity loans and offers no grandfathering provisions.

What counts as mortgage interest when taking the Mortgage Interest Deduction?

  • The portion of your total mortgage payment that goes toward paying interest
  • Points paid during the initiation of your mortgage
  • Private mortgage insurance (for 2018)

The increase in the standard deduction will effectively take away the tax benefit of paying home mortgage interest. If your total itemized deductions don’t exceed the raised standard deduction, then you won’t itemize, and the fact that mortgage interest is deductible won’t do you any good.

More  on tax reform and homeownership

Mortgage Interest Deduction Calculator
 The deduction only applies to those taxpayers who itemize. Wondering how the new law will affect you?

Expertise is one call away.

The Isaacs Team LLC


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