Jackie and Mike purchased a home in 2023 for $650,000, with a down payment of $150,000. They financed the remaining $500,000 with a mortgage loan at an interest rate of 7%. In the first year of their mortgage, they paid a total of $35,000 in mortgage interest.
When it came time to file their taxes, Samantha and Mike realized that they could deduct their mortgage interest from their taxable income. They decided to itemize their deductions, which included their mortgage interest, property taxes, and charitable contributions.
By deducting their mortgage interest, they were able to reduce their taxable income by $35,000. This resulted in a lower tax bill and a larger tax refund. Without the mortgage interest deduction, Samantha and Mike would have paid more in income tax, and their tax bill would have been substantially higher.
Because they were able to deduct their mortgage interest, Samantha and Mike had more money to put towards other expenses, such as home repairs and maintenance. They were happy to be able to take advantage of the tax benefits of homeownership and enjoy their new home with peace of mind.
Mortgage interest is the interest paid on a loan that is taken out to buy, build or improve a property. When you say that mortgage interest is tax-deductible, it means that the interest paid on a mortgage loan can be subtracted from your taxable income, which can reduce the amount of income tax you owe to the government.
In the United States, mortgage interest is tax-deductible if you itemize your deductions on your tax return. This means that you must report all of your deductible expenses, including mortgage interest, and your total itemized deductions must be greater than the standard deduction to make it worthwhile.
To claim the mortgage interest deduction, you will need to fill out IRS Form 1098, which your mortgage lender will send to you. The form shows the total amount of mortgage interest paid during the year.
It’s important to note that there are limits on the amount of mortgage interest that can be deducted, and the rules can vary depending on factors such as the type of property you own, the size of your mortgage, and your income level. Therefore, it’s a good idea to consult with a tax professional to determine your eligibility for the mortgage interest deduction and to ensure that you are taking advantage of all available tax benefits.
