Can I Still Deduct Mortgage Interest?
Posted on Tuesday, March 02, 2021
ShareRecent law changes have muddied the waters regarding whether individual taxpayers can deduct mortgage interest. Before 2018 the answer was generally, "Yes, if you itemize, " and actually, the answer is still the same. But changes enacted in 2017 by the Tax Cuts and Jobs Act (TCJA) have made it harder to deduct interest due to the substantial increase in the standard deduction under TCJA. Itemized deductions only benefit you if they are more than the standard deduction.
The standard deduction for joint filers used to be around $12,000. TCJA doubled it in 2018, and It is $24,800 for 2020, $27,400 if both taxpayers are 65 or over. The standard deduction for single filers is now $12,400 for 2020, $14,050 for those 65 or over. You can see how this prevents many couples from itemizing and deducting their mortgage interest.
In many cases, even if you can take the deduction, you might only deduct a portion of the interest. For example, suppose a couple both over 65 has mortgage interest of $8,000, state and local taxes of $10,000, charitable contributions of $10,000, and no deducible medical expenses. Their total itemized deductions would be $28,000, which is more than the $27,400 standard deduction. Still, only $600 of their mortgage interest is deductible since they can deduct $27,400 even if they don't itemize.
The new law also reduced to $750,000 the amount of new mortgage on which the interest is deductible. It also outlaws deducting home equity interest for loans not used to improve your residence.
While there are often other reasons to maintain a mortgage other than deducting the interest, if you are hanging on to your mortgage solely to get an income tax deduction, it may not be worth it anymore. Your DWD accountant can help you determine if it's worth it for you.
Contributed By: Mark Westerhausen, CPA | DWD CPAs & Advisors
Posted in Tax Topics For Individuals
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