Business is booming.

Guide to 2021 Mortgage Tax Deductions

29


Your guide to mortgage tax deductions for 2021 

It’s about time to start filing your 2021 taxes. And many homeowners will be wondering about mortgage tax deductions.

As a general rule of thumb, you can only deduct some mortgage costs — and only if you itemize your deductions. If you’re taking the standard deduction, you can disregard the rest of this information because it won’t apply.

So, which mortgage costs are tax-deductible and which aren’t? Here’s what you should know.

Note: We are exploring only federal tax deductions for the 2021 tax year, filed in 2022. Those for state taxes will vary. This article is for general informational purposes only. The Mortgage Reports is not a tax website. Check the relevant Internal Revenue Service (IRS) rules with a qualified tax professional to ensure they apply in your personal circumstances.


In this article (Skip to…)


How mortgage tax deductions work 

Before you worry too much about making mortgage tax deductions, let’s make sure they apply to you.

As mentioned above, mortgage expenses are only tax-deductible if you decide to itemize your deductions. If you take the standard deduction, they won’t apply.

In the 2018 tax year, only 11.4% of individual taxpayers made itemized deductions according to the IRS. The others preferred to make the standard deduction.

Standard deduction for 2021 taxes

If you take the standard deduction, you can’t itemize any other deductions, including those related to your mortgage. So nothing in this article applies to you.

For 2021 tax returns, the government has raised the standard deduction to:

  • Single or married filing separately — $12,550
  • Married filing jointly or qualifying widow(er) — $25,100
  • Head of household — $18,800

If your deductible items don’t add up to more than that, you’re typically better off taking the standard deduction.

Mortgage interest tax deductions 

So you plan to itemize your deductions for the 2021 tax year. What does that mean for your mortgage tax deductions?

Your biggest tax break should come from the mortgage interest you pay. That’s not your full monthly payment. The amount you pay toward your loan principal isn’t deductible. Only the interest portion of your payment is.

Depending on how big your mortgage is, you may encounter a cap on the interest you can deduct.

If your mortgage was in place on December 14, 2017, you can deduct interest on a debt of up to $1 million ($500,000 each, if you’re married and file separate returns). But if you took out your mortgage after that date, the cap is $750,000.

To be clear, if your mortgage is higher than $1 million or $750,000, whichever applies, you can still deduct some interest. But only for interest paid on a loan amount up to those caps.

Private mortgage insurance tax deductions

According to IRS Publication 936, “You can treat amounts you paid during 2021 for qualified mortgage insurance as home mortgage interest. The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006.”

That means you can deduct mortgage insurance paid throughout the year, but only if the loan was used to purchase your home.

However, there’s an income cap.

If your adjusted gross income (AGI) is below $100,000 ($50,000 if married and filing separately), you can deduct your mortgage insurance premiums in full. But if your AGI is $109,000 ($54,500 if married and filing separately) or higher, you can deduct none of them. In between the $100,000 and $109,000 the proportion you can deduct drops progressively.

Don’t bank on being able to deduct mortgage insurance premiums in future years. It was supposed to have been abolished years ago. But Congress keeps renewing it on a year-by-year basis. And, one day, it might not.

Closing cost tax deductions

Only some closing costs are deductible. Those are usually:

  1. Property taxes paid in advance at closing
  2. Discount points — See below
  3. Prepaid interest — The interest you pay for the remainder of the month in which you close
  4. Origination fees — The amount your lender charges for processing your application
  5. Mortgage insurance premiums — In some circumstances. See above

No other closing costs (home appraisal, inspection, escrow fees, title insurance, and so on) are generally deductible.

Second home tax deductions

You can make mortgage interest deductions on a second home (perhaps a vacation home) as well as your main residence. But the mortgage(s) must have been used to “buy, build, or substantially improve” the property, in the words of turbotax. And there’s a limit of two homes; you cannot deduct interest on three or more.

If that second home is owned by your son, daughter, or parents, and you’re paying the mortgage to help out, you can only deduct the interest if you co-signed the loan.

Second mortgage tax deductions

You may be able to deduct interest on a second mortgage, usually a home equity loan or home equity line of credit (HELOC). But, since 2018, you can only do so if you used the money to buy, build, or substantially improve your main residence or second home. Older loans have no such rule.

Again, there’s a cap. You can only deduct the interest on the first $100,000 of your second mortgage’s value.

Refinance tax deductions

A “rate-and-term refinance” is one where your new mortgage balance is effectively the same as your old one. A rate-and-term refinance should not generate any new tax deductions.

However, a cash-out refinance may change things.

You can still deduct interest on your original mortgage balance. But you can only deduct interest on the cash-out amount if it was used to buy, build, or substantially improve your main residence or second home.

So you won’t be able to deduct interest on cash-out money you used for any other purpose, such as debt consolidation, a family wedding, a vacation, and so on.

The good news is that you do not have to pay income tax on funds received from cash-out refinance. It’s a loan that has to be repaid with interest. So it’s not taxable income.

Discount point tax deductions

Discount points (aka “mortgage points”) allow you to buy yourself a lower mortgage rate by paying a lump sum at closing. In the past, you could deduct the cost of discount points at the end of the tax year in which you paid the lump sum. But no more.

Now, you can still deduct discount points but only pro-rata over the lifetime of your loan.

For example, if you have a 30-year mortgage, you deduct one-thirtieth of the lump sum each year. With a 15-year loan, you deduct one-fifteenth.

If you refinance with a different lender within the lifetime of the mortgage, you can deduct all the remaining points costs in that year. But if you refinance with the same lender, you continue as before.

Mortgage tax deduction FAQ

Are mortgage payments tax-deductible?

You can’t deduct your full monthly payment. But you can deduct the portion of it that goes to interest. At the start of your loan, a large portion of each monthly payment is interest. By the end, almost none of it is. The portion falls steadily over the life of your mortgage. Again, you can only make this deduction if you itemize your deductions.

Are mortgage points tax-deductible? 

Yes. But not as a lump sum. With a 30-year mortgage, you deduct one-thirtieth of the cost of the points each year. With a 15-year loan, you deduct one-fifteenth. And so on.

Is mortgage insurance tax-deductible? 

Yes, for the 2021 tax year, provided your adjusted gross income (AGI) is below $100,000 ($50,000 if married and filing separately). Above $109,000 ($54,500 if married and filing separately) you can’t make any deductions for mortgage insurance. Between those two incomes, you can deduct progressively less for each extra $1,000 you earn.

Do I have to pay taxes on a cash-out refinance?

You don’t pay tax on the amount you cash out. It’s a loan like any other and those aren’t taxable as income. But you may be able to deduct interest paid on the cash-out amount if the money was used to buy, build, or substantially improve your primary or second home.

Are home equity loans tax-deductible?

Again, interest on home equity loans isn’t usually tax-deductible. But it should be if you used the proceeds of your loan to buy, build, or substantially improve your main residence or second home.

Is a home equity line of credit (HELOC) tax-deductible? 

A HELOC is a second mortgage, just like a home equity loan. And the rules are the same. Namely, you can only deduct the interest if you used the proceeds of your loan to buy, build, or substantially improve your main residence or second home.

Are closing costs tax-deductible? 

Some can be. But it’s a shortlist that mostly involves small sums. However, you can deduct your lender’s origination fees (even if your lender paid them for you), which can be worthwhile. See above for the full list. Other than that, you can’t deduct most of the big-ticket items, such as fees for your appraisal, inspection, title insurance, escrow fees, and so on.

The bottom line

The bottom line is that mortgage expenses are only tax-deductible if you itemize your taxes rather than taking the standard deduction. And even then, the rules can be complex.

The Mortgage Reports is not a tax website and this information is meant for general guidance only. Speak with a licensed tax professional about your situation before taking any next steps.

If you prefer, the IRS has an online, interactive tax assistant (“Can I Deduct My Mortgage-Related Expenses?“) that might help you. And you can also download the IRS Publication 936 guide, “Home Mortgage Interest Deduction. For use in preparing 2021 Returns” from its website.

Verify your new rate (Jan 24th, 2022)



Source link

29 Comments
  1. actigma says

    It s quite intuitive to use, and all the most important information is laid out on the home page buy cialis online europe

  2. Abrarry says

    Gelam and Tualang honeys from Malaysia exhibit anti cancer properties such as inhibition of cell proliferation and DNA damage, induction of apoptosis and cell cycle arrest of liver and colon cancer cells 24, 25, human osteosarcoma cells HOS 26, breast cancer cells MCF 7 and MDA MB 231 and cervical cancer cells HeLa 27 lasix brand name However, the p53 pathway is often mutated in cancer 12

  3. cheemialm says

    As defined above and described herein, Ring B is selected from a 6 membered aryl containing 0 2 nitrogen atoms or a 5 membered heteroaryl with 1 3 heteroatoms independently selected from nitrogen, oxygen or sulfur tab ivermectin 3mg Combining 80 cases from 4 fertility centers, the pregnancy rate i

  4. bruiviors says

    indications for tamoxifen Low levels of HDL may be a greater risk factor for women, according to the AHA

  5. arcaxia says

    clomid dose pct According to these findings, we postulate that other than the direct loss of Cxcl12 Cxcr4 signaling, the detachment of HSPCs from the osteoblastic niche also accounts for their dysregulated homeostasis

  6. Nutalitte says

    AMГў s client segments consists of Private Banking, Institutional and Retail doxycycline hyc MCF 7 TAM MT and MCF 7 TAM shCK О± MTsh and CK О± knockdown MCF 7 MC and MCF 7 TAM MT vs

  7. Seignew says

    dissolves much better in warn water and about 16 OZ per 5 GMS is a must stromectol uk over the counter

  8. Kigtriate says

    Can you stack lasix 40 mg PMID 8645016 Review

  9. KwivOvawn says

    hi opp ggeis 2022 ert go fi

  10. majorsite says

    Of course, your article is good enough, majorsite but I thought it would be much better to see professional photos and videos together. There are articles and photos on these topics on my homepage, so please visit and share your opinions.

  11. Uncoomb says

    Wan Jianzong was turned into a ruin again cialis online ordering Skip the dose if it is less than 4 hours before the next dose

  12. rarcina says

    Gaston xcwUTjRftHpWikY 6 26 2022 buy clomid amazon

  13. AbicyCisy says

    what does generic viagra look like Melatonin is used a number of times as an adjunct to standard chemotherapy in humans

  14. baltslers says

    Although this potential side effect raises concerns, the benefits of tamoxifen in treating breast cancer are well established and far outweigh the potential risks what happens if you take viagra twice in one day Despite these complications, clinical outcomes from studies of these patients undergoing CABG seem conflicting

  15. Chietrext says

    where can i buy zithromax over the counter in florida As for the demon world, that is a place where only the strong blood pressure spikes while on medication can go, Even Rogge himself is not a strong man, let alone these men

  16. mepAcceta says

    tamoxifen citrate for sale 32 which confirmed that taking О©- 3 PUFAs from fish oil for eight weeks at a dose of 4 g day had a positive effect on the level of serum insulin and glucose uptake in PCOS patients

  17. hiftblalt says

    He woke up late in the evening at an apartment, where he had sexual relations with an Orange Pride member who wasn t his official hostess, never bothering to ask her name where to buy clomid trusted site This trial excluded patients with pre existing heart failure or new or worsening edema on AVANDAMET

  18. afficle says

    Benign Fasciculation Syndrome lasix price Conventional power generation, whichunlike wind and solar power is not subsidised, is being pushedout of the mix

  19. baccarat online says

    I came to this site with the introduction of a friend around me and I was very impressed when I found your writing. I’ll come back often after bookmarking! baccarat online

  20. dyentybex says

    levitra rogaine foam for facial hair Гў No one would have imagined that CampbellГў s soup can be effective in turning a batch of tofu cubes into something delicious, Гў said Chang, who adds it to the brandГў s cream of chicken and mushroom soup propecia generika 1mg

  21. arguesK says

    Rs 115 Box Get Latest Price buying cialis online usa The commitment of the Chief Medical and Nursing Officer and integrating feedback on a monthly basis communication of the staff is crucial

  22. Guxuladut says

    1998; 90 1774 1786 buy cialis with paypal

  23. Wifople says

    Zithromax liquid Zithromax where to buy Azithromycin buy.

  24. Istng46 says
  25. driessy says

    generique viagra sildenafil pfizer viagra definition.

  26. tias41 says
  27. ltahbo says

    what are the side effect of furosemide? what is the medicine furosemide used for lasix side effects

  28. Opwsovg says

    The amount of porphobilinogen PBG in urine is increased during attacks of AIP. Tadalafil Generic usa Everything trends of pills. Comprehend now.

Leave A Reply

Your email address will not be published.