Deducting your mortgage interest for 2022
If you deducted your mortgage interest from your taxes last year, you'll find things are basically the same this year. But, if you're new to deducting your mortgage interest, or need a refresher, here's a crash course:
What is a tax deduction?
A tax deduction is an amount of money you subtract from your annual taxable income, lowering the amount of taxes you owe.
For instance: Say you make $50,000 and owe 20% in taxes. That means you owe $10,000 in taxes. But if you can deduct $5,000 from your income, now you owe 20% of $45,000, or $9,000. That $5,000 deduction saves you $1,000 at tax time.
What counts as mortgage interest?
According to the IRS: Generally, home mortgage interest is any interest you pay on a loan secured by your main home or a second home. The loan may be a mortgage to buy your home or a second mortgage.Footnote1
Here are the basic conditions for what qualifies as deductible mortgage interest:Footnote1
- Your property must be a house, condo, co-op, mobile home, boat or similar property that has sleeping, cooking and toilet facilities.
- Your home has to be collateral for the mortgage loan.
- Your main home is the one where you ordinarily live most of the year.
- If you rent out your second home, you have to be there for at least 14 days per year, or more than 10% of the number of days you rented it out, whichever is longer.
- Interest on a home equity loan, up to $100,000 (for married filing jointly), can only be deducted if you use the funds to buy, build or substantially improve the home that it's borrowed against.
You have to itemize your deductions - as opposed to taking the standard deduction - to deduct your mortgage interest from your taxes.
For a more complete picture of mortgage interest deductions, consult your tax advisor or refer to IRS Publication 936.Footnote1
Is there a ceiling to the amount of mortgage interest you can deduct?
That depends on when you took out your mortgage:
- If you took out your mortgage on or before October 13, 1987, there is no limit on the amount of mortgage interest you can deduct from your taxes.
- If you took out your mortgage after October 13, 1987, and before December 16, 2017, you can deduct mortgage interest on up to $1 million.
- If you took out your mortgage after December 16, 2017, you can deduct mortgage interest on up to $750,000.
- If you're married and filing separately, the limits in the second and third examples above should be cut in half.
What are some little-known mortgage interest deductions?
- If you're having a home built, you can deduct the mortgage interest on that property while it's under construction for up to 24 months - but you have to move into the home once it's ready for occupancy. The 24-month period can start any time after construction begins.
- You can deduct a late payment charge on your mortgage payment if it wasn't for a specific service performed in connection with your mortgage loan.
- If you pay off your mortgage early, you may pay a penalty. You can deduct that penalty as mortgage interest if it wasn't for a specific cost incurred or service performed in connection with your mortgage loan.
Are there other home-based deductions or exclusions I can take?
- If you bought your home in the last year, there are closing costs you can deduct, including property taxes, loan points, origination fees and mortgage insurance premiums.Footnote2
- If you sold your home in the last year, based on an IRS capital gains tax exclusion, you may be exempt from paying taxes on the first $250,000 of profit if you're single ($500,000 if married and filing jointly).Footnote3
Consult with your tax advisor to determine whether itemizing your deductions and deducting your mortgage interest will be a better option for you than taking the standard deduction.
A note from your lending specialist
Feel free to contact me with any questions you may have about a home loan, or if you're interested in refinancing or a mortgage preapproval.Footnote4
1 Publication 936 (Cat. No. 10426G), Home Mortgage Interest Deduction, Department of the Treasury, Internal Revenue Service.
2 5 Types of Tax-Deductible Closing Costs, Forbes.com, Amy Fontinelle and Mike Cetera, March 26, 2021. Accessed December 2022.
3 10 Tax Benefits Of Owning A Home, Forbes.com, Amy Fontinelle and Mike Cetera, March 22, 2021. Accessed December 2022.
4 Final loan approval is subject to satisfactory appraisal and title review and no change in borrower credit and financial condition. Preapproval is subject to terms and conditions and timely submission of required documentation; ask your Bank of America Wealth Management Lending Officer for details. Preapproval does not commit to the continued availability of the loan program. The interest rate shown in a preapproval is based on current market rates and is not locked. You may choose to lock an interest rate after we receive the complete and executed purchase contract. Borrower must submit purchase contract within 90 days of preapproval. If the rate at time of lock is higher, or a rate lock expires prior to funding, or for adjustable-rate loan programs when the index value rises, we must determine your ability to repay the loan at the higher rate, which may lower the loan amount or invalidate the preapproval. Not available on all loan products. Not available on refinance loans.
MAP5455958 | 02/2023