There are circumstances where owning a home can have tax benefits. The benefits can be different for your federal and state taxes. States often have specific rules for which mortgage costs are and aren’t tax deductible. And how you file your taxes can impact which tax deductions you may be able to claim.
To better understand whether you can deduct your mortgage interest and other mortgage costs from your taxes, talk to your tax professional. Here is an overview of which mortgage costs might be tax deductible for you in 2023.
Is mortgage interest tax deductible?
Current IRS rules allow many homeowners to deduct up to the first $750,000 of their home mortgage interest costs from their taxes. Homeowners who are married but filing separately may be allowed to deduct up to the first $350,000 of their mortgage interest costs. There are higher limits for homeowners who got mortgages before December 16, 2017.
Keep in mind that you generally need to itemize your tax deductions, rather than taking the standard deduction, to claim your mortgage interest costs on your tax returns. Talk to your tax professional about which choice may be better for you. Also remember that deducting your mortgage interest is typically most beneficial in the beginning of your loan term. That’s because most mortgages are structured so that more of your monthly bill goes towards interest payments in the early years of the loan. In later years, your interest payments are usually smaller and so your potential tax deductions can be smaller too.
At the beginning of tax season, you will receive a Year End Statement (Form 1098) from your mortgage servicing company. This form documents the mortgage interest you paid in the previous year. You will need to know how much mortgage interest you paid in a year in order to calculate how much you may be able to deduct from your taxes. Learn how to get your mortgage interest 1098 form.
Is mortgage insurance tax deductible?
Depending on your income and loan type, you may be able to deduct your mortgage insurance on your federal taxes. Types of mortgage insurance generally considered tax deductible by the IRS include private mortgage insurance (PMI) on conventional loans, mortgage insurance premiums (MIP) on FHA loans, the VA loan funding fee, and the USDA loan guarantee fee.
Are mortgage points tax deductible?
Mortgage discount points are sometimes tax deductible. The rules governing the tax deductibility of mortgage discount points are complex however. To better understand these rules, consult your tax professional. Also see this article on the IRS website.
Are mortgage principal payments tax deductible?
The payments you make toward your mortgage principal – which is the money you borrowed to buy your house – are not tax deductible. As result, you cannot claim the part of your monthly mortgage bill that goes toward paying down your principal as a deductible expense on your taxes. The cost of your down payment, homeowners insurance, title insurance, and closing costs other than discount points are typically not tax deductible either.
What is the mortgage interest tax credit?
Lower-to-moderate income families may be eligible for a tax credit through the Mortgage Tax Credit Certificate (MCC) program. The MCC offers a dollar-for-dollar tax credit which makes housing payments more affordable. The program is limited to first-time homebuyers, you need to meet its requirements to qualify, and the amount of the credit can vary by state. Lenders generally apply for this tax credit on your behalf when you apply for a mortgage. Learn more about these tax credits at FDIC.gov.
* Freedom Mortgage Corporation is not a financial advisor. The ideas outlined above are for informational purposes only, are not intended as investment or financial advice, and should not be construed as such. Consult a financial advisor before making important personal financial decisions, and consult a tax advisor regarding tax implications and the deductibility of mortgage interest and charges.
Last reviewed and updated July 2022 by Freedom Mortgage Corporation.