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I understand that mortgage payments are tax deductible. Is 100% of the payment deductible or some other percentage, and does the deduction vary based on other factors (say, maybe, type of mortage, etc).
Just curious about this.
One reason I'm asking is that if a mortgage payment is deductible that savings could be used to pay homeowners insurance, property taxes, etc, thus reducing the annual carrying cost of a house.
I understand that mortgage payments are tax deductible. Is 100% of the payment deductible or some other percentage, and does the deduction vary based on other factors (say, maybe, type of mortage, etc).
Just curious about this.
One reason I'm asking is that if a mortgage payment is deductible that savings could be used to pay homeowners insurance, property taxes, etc, thus reducing the annual carrying cost of a house.
Interest and Property Taxes are deductible. Nothing else is(so HOA and Insurance aren't). As Mathjak mentioned, you only come out ahead if this puts you over the standard deduction. So for an individual, the standard deduction last year was $6,100. That means that if your combined taxes and interest were $7,000, then you get a higher deduction by itemizing. If it's less than that, you gain nothing.
Obviously, if you're already itemizing, the entire thing becomes a benefit, but I think it's pretty uncommon for people to be itemizing before buying a house(not impossible, just unlikely).
Because you're paying more in interest during the beginning part of the mortgage(you have a higher outstanding balance year 1 than year 29) the split does shift overtime. An amortization schedule can show you the exact interest/principal split if you really want to know.
Interest and Property Taxes are deductible. Nothing else is(so HOA and Insurance aren't). As Mathjak mentioned, you only come out ahead if this puts you over the standard deduction. So for an individual, the standard deduction last year was $6,100. That means that if your combined taxes and interest were $7,000, then you get a higher deduction by itemizing. If it's less than that, you gain nothing.
Obviously, if you're already itemizing, the entire thing becomes a benefit, but I think it's pretty uncommon for people to be itemizing before buying a house(not impossible, just unlikely).
Because you're paying more in interest during the beginning part of the mortgage(you have a higher outstanding balance year 1 than year 29) the split does shift overtime. An amortization schedule can show you the exact interest/principal split if you really want to know.
Property taxes are NOT always Deductible. If you are in AMT in a high tax state they certainly phase out and are only partially deductible at best.
Condo/HOA fees and Insurance MIGHT be deductable - If you rent out your unit full time or part of year you can deduct Condo/HOA fees and insurance vs rental income.
Mortgage Interest is NOT always deductable and its value as a deductible varies widely. If you are a low income earner, have a small mortgage, or a very low interest mortgage or not many other deductions you might not itemize as standard deduction is higher therefore no extra deduction for having a mortgage. Likewise a mortgage deduction in the 15-28% bracket not worth as much as someone in the 28-39.6% tax bracket.
I've owned my house for 11 years now and have never itemized. So the interest deduction benefits me $0.
Every year, I go through the entire process to check, but every year, the standard deduction is better.
I live in a very low COL/low wage area, so I'm only in the 15% bracket, my mortgage only has about an $80k balance, I have no kids, and I have a normal 9-5 job with no deductions for work.
So if your situation is like mine, you would deduct 0% of your mortgage payment. But situations like mine are pretty rare.
If you were an interest only loan, and didn't escrow your taxes and insurance, and were already itemizing, you could potentially deduct 100% of your mortgage payment. But this would be equally rare.
Most people fall somewhere in the middle. Their mortgage payment consists of principal, interest, taxes and insurance. Of that, the interest and usually the taxes are deductible, the principal and insurance are typically not. Of the deductible share, only the part that is in excess of the standard deduction is any real benefit.
The annual cost of the house would be reduced IF your itemized deductions add to more than the standard deduction. The difference between the two, times your marginal tax rate, is the amount by which your cost gets reduced.
If your standard deduction would be $12,000 and your itemized deductions would be $16,000 and you are in the 25% bracket, your tax liability is reduced by (25/100)(16000 - 12000) = $1000.
We will be able to itemize this year but not next due to a refi of our mortgage. The interest savings is greater than the tax savings and what we will do is pay 2015 property taxes on 1/1/16 and pay 2016 property taxes 12/31/16 and then be able to itemize in 2016 again for that year. Alternating years between standard deductions and itemizing
We will be able to itemize this year but not next due to a refi of our mortgage. The interest savings is greater than the tax savings and what we will do is pay 2015 property taxes on 1/1/16 and pay 2016 property taxes 12/31/16 and then be able to itemize in 2016 again for that year. Alternating years between standard deductions and itemizing
How will you make sure the transaction clears on Dec. 31?
How will you make sure the transaction clears on Dec. 31?
I should have said by 12-31, we've already paid them for this year.
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