How do mortgage interest deductions work with the current limits?

[Tyler_W]

I'm buying my first home and trying to understand mortgage interest deductions. With the new tax laws and limits, is this still a valuable deduction? How does it work with state tax strategies? Looking for real numbers on how much this actually saves people in different tax brackets.

[Ronald.C]

Under current law, you can deduct mortgage interest on up to $750,000 of mortgage debt ($375,000 if married filing separately). This is down from $1 million under old law. You can only deduct interest if you itemize, and with the higher standard deduction now, fewer people benefit from mortgage interest deductions.

[Kenneth81]

For a $400,000 mortgage at 4% interest, you'd pay about $16,000 in interest the first year. If you're in the 22% tax bracket and you itemize, that saves you about $3,520 in federal taxes. But you need enough other deductions to exceed the standard deduction ($27,700 for married filing jointly in 2023).

[MatthewDG]

State tax strategies vary a lot. Some states have their own mortgage interest deductions or credits. Some have property tax deductions or credits. Some have no income tax at all. You really need to look at your specific state's rules to understand the full picture of mortgage interest deductions benefits.

[JustinVS]

Points paid to get a lower interest rate are also deductible, usually over the life of the loan. Property taxes are deductible up to $10,000 combined with state income taxes (SALT deduction limit). So between mortgage interest, property taxes, and state taxes, you might be able to itemize even with the higher standard deduction.

[Jack.L]

One strategy is bunching deductions. Pay two years of property taxes in one year to get over the standard deduction threshold, then take the standard deduction the next year. Same with charitable donations. This can make mortgage interest deductions more valuable since you're more likely to itemize in the bunching year.

[Paisley.M]

Remember that the benefit is only on the amount over the standard deduction. So if your standard deduction is $27,700 and your itemized deductions total $30,000, you only get benefit from the extra $2,300. At 22% tax rate, that's $506 savings, not the full $6,600 you might calculate on the full $30,000.