How to Calculate the Tax Benefit of Mortgage Interest

A mortgage can reduce your tax liability.

The federal government permits taxpayers to deduct mortgage interest from their taxable income. To qualify as a deductible mortgage, the loan must use the home as collateral, and the taxpayer must be legally liable for the loan and make the payments. Particularly early in the mortgage, when most of the payments go toward interest, the deduction can save taxpayers a significant amount on their taxes. To claim the deduction, you must itemize your deductions, which requires you to file your income taxes using Form 1040 and Schedule A.

Things You'll Need

• Calculator

Instructions

1. Find your marginal tax rate, which is the highest tax rate you pay, by using the tax tables and your taxable income.

2. Consult your Form 1098 to find the mortgage interest you paid in box 1. The form 1098 will be given to you by your lender at the end of the year.

3. Multiply your interest paid by your marginal tax rate to calculate how much your mortgage will save you on your taxes. For example, if you paid $12,000 in mortgage interest and you fall in the 33 percent tax bracket, you would multiply $12,000 by 0.33 to find your mortgage would save you $3,960.

References

• IRS: Publication 936
• IRS: Publication 17

Resources

• IRS: Schedule A