Homeowners who itemize tax deductions can deduct the interest on up to $750,000 of mortgage balances used to buy, build or improve a qualified home. In the past few years, not as many home buyers benefited from this because their total annual interest expense was lower than their standard deduction.
However, interest rates and total annual interest expenses have doubled according to Freddie Mac’s weekly survey of mortgage rates. For example, a $500,000 mortgage at a 6.5% interest rate has an annual interest expense of $32,500. This far exceeds the standard deduction. This also means that the homeowner in this example is more likely to itemize and benefit from the mortgage interest deduction.
In this example, a 6.5% mortgage costs 4.94% after-tax for someone in a 24% tax bracket.
This only applies if you itemize your tax deductions. Generally, you’ll only itemize if your total itemized deductions exceed the standard deductions listed below:
$27,700 for married taxpayers filing a joint return. $13,850 for single taxpayers.
PLEASE NOTE: THIS ARTICLE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936. Also, this article is not an offer or commitment to lend you money, and it is not an advertisement for a specific mortgage or a specific interest rate.
This article is intended to be accurate, but the information is not guaranteed and situations vary from person to person. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional.
The article is provided with content from Momentifi.