Mortgage Interest Deduction Offers Potential Savings Amidst Rising Rates
Amidst the economic rebound from the pandemic, home mortgage rates have surged, but a glimmer of relief awaits homeowners grappling with steep interest payments, according to Rent.com. The key lies in the strategic filing of tax returns, with the mortgage interest deduction paving the way for potential savings.
For those opting to itemize tax returns instead of taking the standard deduction, the mortgage interest deduction allows filers to deduct the entirety of their home interest payments, coupled with other eligible write-offs. Tax experts anticipate this option to be more appealing to a broader spectrum of filers this season.
While the standard deduction for the 2023 tax year is $13,850 for single filers and $27,700 for married taxpayers filing jointly, many homeowners might find the mortgage interest deduction to be a more lucrative option. A single filer paying a 4% interest rate on a $500,000 home loan, resulting in annual interest payments of $20,000, could realize substantial savings by opting for itemization.
Despite a decline in mortgage rates from the post-pandemic peak of 7.8%, the current 30-year mortgage rate remains above 6%. It’s important to note that principal payments, down payments, closing costs, appraisal fees, and insurance cannot be deducted from taxes. Additionally, mortgages on rental properties are ineligible for the deduction unless they serve as the filer’s primary residence. The deduction only applies to the portion of the home used for living, preventing double-dipping for those claiming home office tax write-offs.