Can You Deduct Your Mortgage Interest if You Have No Other Deductions?

For individuals living in the United States, owning a property often includes not just the mortgage but also accompanying taxes. One common question is whether mortgage interest can be deducted when there are no other deductions besides property taxes. This article will explore the nuances and requirements of this deduction.

Mortgage Interest Deduction Requirements

Let's start with the basics: if you live in the US and have a mortgage (indicative of owning a property), it's likely that you also have state and/or local property taxes. These taxes, when combined, can be deductible. However, if these are the only deductions you claim and they exceed your standard deduction, then yes, you can deduct them. The standard deduction for a single filer in 2022 was $12,950, while it was $25,900 for married couples filing jointly. If your property taxes (and other deductible items) exceed these amounts, they can be claimed on your tax return.

Impact of the 2017 Tax Law on Deductibility

While claiming property taxes can be beneficial, the 2017 Tax Cuts and Jobs Act (TCJA) has made it less desirable to itemize. This is due to the near-doubling of the standard deduction from $6,350 for single filers and $12,700 for married filing jointly in 2017 to $12,950 for single filers and $25,900 for married filing jointly in 2022. Additionally, personal exemptions and certain itemized deductions have been eliminated or significantly reduced. As a result, it becomes more advantageous to use the higher standard deduction, even if property taxes and mortgage interest would normally be deductible.

Mortgage Interest Deduction Details

Mortgage interest is generally deductible for properties used as primary or secondary homes. However, there are important limitations and conditions to be aware of. For mortgages taken out after December 2017, there's a limit of $750,000 on the first mortgage debt amount, meaning only the interest on the first $750,000 of the mortgage debt is deductible. If you have more than one property, the limitation applies to the aggregate of your mortgages, up to $750,000. For mortgages taken out before December 2017, the limitations were $1 million for acquisition debt and an additional $100,000 for home equity.

Tax Return and Deduction Process

To claim mortgage interest, one must complete and file Schedule A of the tax return. Historically, about one-third of taxpayers itemized their deductions, while the rest claimed the standard deduction. The benefits of itemizing primarily accrue when the total deductions exceed the standard deduction. Due to the significant increase in the standard deduction, fewer individuals are likely to benefit from itemizing their deductions, including mortgage interest and property tax deductions.

Caveats and Final Considerations

Mortgage interest is only deductible if you opt to itemize your deductions. Another key point is that fewer individuals will receive tax benefits from owning a home if the home is below $425,000 in value, as the tax savings from deductions won't outweigh the higher standard deduction. This is because homes priced below this amount will no longer offer deductions above the standard deduction threshold.

Conclusion

Overall, while mortgage interest and property taxes are deductible, the availability of these benefits depends significantly on your personal financial situation and the specific deductions available to you under current tax laws. For those with no other itemized deductions, qualifying for mortgage interest deduction may still be beneficial, but the higher standard deduction in recent years has made it less compelling for many.