Welcome! Use this calculator to quickly estimate your potential tax savings from the mortgage interest deduction (MID), factoring in current debt limitations and your marginal tax rate.
Mortgage Interest Tax Deduction Calculator
Estimated Potential Tax Savings
Based on the calculated maximum deductible interest.
Mortgage Interest Tax Deduction Formula
1. Calculate Deductible Interest (D):
If Average Balance (B) ≤ Debt Limit (L): D = I (Interest Paid)
If Average Balance (B) > Debt Limit (L): D = I × (L / B)
2. Calculate Potential Tax Savings (S):
S = D × (T / 100)
Formula Sources: IRS Publication 936, US Treasury Dept.
Variables
- Total Mortgage Interest Paid This Year (I): The total amount of interest reported on Form 1098 by your lender.
- Applicable Mortgage Debt Limit (L): The maximum amount of debt for which interest is deductible. Generally $750,000 for loans after 2017, or $1,000,000 for older loans.
- Average Mortgage Principal Balance (B): The average outstanding principal balance of the mortgage debt for the year. This is used to determine the proportionate deduction.
- Taxpayer’s Marginal Tax Rate (T): Your highest federal income tax bracket percentage. This determines the actual dollar value of the deduction.
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What is Mortgage Interest Tax Deduction?
The Mortgage Interest Deduction (MID) allows taxpayers who itemize their deductions to reduce their taxable income by the amount of interest paid on home mortgage debt. This deduction effectively lowers your tax liability, making homeownership financially more appealing. However, it’s crucial to note that not all interest is deductible, as the tax law imposes limits on the amount of debt that qualifies.
The calculation is often complex because it involves understanding limits set by the Tax Cuts and Jobs Act (TCJA) of 2017. For most new loans, the limit is $750,000 in mortgage principal. If your average loan balance exceeds this limit, you must calculate a proportional amount of interest that qualifies as deductible, which is the primary complexity this calculator addresses.
How to Calculate Mortgage Interest Tax Deduction (Example)
- Gather Inputs: Assume Interest Paid (I) is $18,000. Debt Limit (L) is $750,000. Average Balance (B) is $900,000. Tax Rate (T) is 24%.
- Check for Proportional Deduction: Since the Average Balance ($900,000) is greater than the Debt Limit ($750,000), a proportional calculation is needed.
- Calculate Deductible Ratio: $750,000 / $900,000 = 0.8333 (83.33%).
- Calculate Deductible Interest (D): $18,000 \times 0.8333 = \$15,000.
- Calculate Tax Savings (S): $\$15,000 \times (24 / 100) = \$3,600$.
- Conclusion: The potential tax savings from the deduction is $3,600.
Frequently Asked Questions (FAQ)
Is the mortgage interest deduction still available after the 2017 tax changes?
Yes, but the limits changed. For mortgage debt incurred after December 15, 2017, the limit on the principal for which interest is deductible is $750,000 ($375,000 for married filing separately).
What is the difference between the deduction amount and the tax savings?
The deduction amount (Deductible Interest) is the value subtracted from your Adjusted Gross Income (AGI). The tax savings is the deduction amount multiplied by your marginal tax rate. The savings is the actual cash benefit.
Do I have to itemize my deductions to claim the MID?
Yes, the mortgage interest deduction is an itemized deduction. If the standard deduction is greater than the total of your itemized deductions, you would typically use the standard deduction and would not claim the MID.
Can I deduct interest on a second home?
Yes, the limit applies to the total mortgage debt on up to two residences (a main home and a second home). However, the combined debt cannot exceed the applicable limit.