Mortgage Interest Deduction

While many professionals tout appreciation as the main benefit of homeownership, higher mortgage rates bring another tool into the equation that hasn’t been promoted in well over a decade.  

Changes in the tax laws and low interest rates have made the mortgage interest tax deduction irrelevant to many homeowners. This itemized deduction allows homeowners to subtract mortgage interest from their taxable income, lowering the amount of taxes they owe. 

This deduction hasn’t been a selling point for many years because annual interest payments from a mortgage have often been lower the annual standard deduction for most households. 

For example, five years ago, 2018, the basic standard deduction was $12,000 for singles Interest rates were hovering around 4.6% and a median priced home was selling for $265,000. With 10% down, a monthly mortgage payment would have been around $1,237 a month. Over the course of the year, the buyer would be paying around $11,200 in interest making the standard deduction a better deal. In 2023 the standard tax deductions are $13,850 for a single filer. The median home price today in the Valley is $435,000. With 10% down, and today’s interest rate of around 7%, those numbers look a little different, making the use of the mortgage interest deduction much more attractive. 

And, in addition to the tax savings, buyers build equity in their property. Of course, a person paying rent today has no tax savings, no equity growth, and nothing left but memories when they move out of their rental. So, Buyers should always talk to a qualified, professional tax accountant for personalized, detailed tax advice. And to learn more about the opportunities in today’s real estate market, they can call me John Schloz with HomeSmart