The Mortgage Interest Deduction Myth!

The Mortgage Interest Deduction Myth!

I'm sure you've heard this before -

"When you buy a home you get to deduct the mortgage interest on your income taxes and pay less tax".

I would like to address this statement because it is a common selling point for the real estate and mortgage industry, but it's not completely accurate.  Let me explain, but first full disclosure, I'm not a tax professional.  Consult your tax professional on this.  Now onto my explanation. Although it is true that you can claim mortgage interest on your taxes, it's also true that it probably isn't doing you any good.  In order to be able to claim mortgage interest on your taxes you must itemize deductions on form 1040 Schedule A.  If you are not itemizing deductions, then the mortgage interest isn't doing you any good.  I'm guessing you're probably thinking "easy enough, I'll just itemize my deductions and claim the mortgage interest."  Fair enough, and I'm willing to bet that most households can't come up with enough deduction to make itemizing worth it anyway.  Here's why, for 2016, the standard Federal deduction for a "Single or Married filing separately" was $6,300.  For a "Head of Household" it was $9,300, and for "Married filing jointly or Qualifying widower" it was $12,600.  Look at which category you file under and ask yourself if you can come up with enough itemized deductions to beat the standard deduction.  For most people the answer is probably going to be no, you can't.  IRS data shows us that only 41.7% of households in the $50K - $75K income group itemize deductions.  The percent of filers who itemize goes down with lower incomes and up with higher incomes.  What this means is that if you can't itemize enough deduction to beat the standard deduction, then you are getting the same standard deduction that someone who rents a home gets!


Now, I don’t tell you this to discourage you from buying a home.  I think most people who can buy a home, should buy a home.  I just don’t want you to go into home ownership thinking that you are going to get some “mythical” benefit from the mortgage interest when chances are that you won’t.


My suggestion to you is that if you are unable to beat the standard deduction and itemize, look at where you are missing out, and try to capture as many of the allowable deductions that you can.  Then maybe next year you can actually get the benefit of paying mortgage interest and save on your taxes.


Sorry if I busted your bubble, and I hope this was helpful.

Does the thought of applying for a home loan fill you with dread?
I understand if it does. I also have a solution!
Sign up below to get your FREE Home Loan Toolkit.

We respect your email privacy

Leave a Reply