Does Paying a Mortgage Help With Taxes?

Owning a home comes with financial responsibilities, but it also offers tax benefits. Many homeowners wonder if paying a mortgage reduces their tax burden. The answer depends on deductions related to interest, property taxes, and insurance.

Not every homeowner qualifies for these deductions, so understanding how mortgage-related expenses affect taxes is essential.

Mortgage Interest Deduction

A key tax benefit of homeownership is the mortgage interest deduction, which lowers taxable income for those who qualify. This applies to interest paid on loans used to buy, build, or improve a primary or secondary residence, provided the loan meets specific requirements.

Under the Tax Cuts and Jobs Act (TCJA), in effect through 2025, homeowners can deduct interest on mortgage debt up to $750,000 for joint filers ($375,000 for married individuals filing separately). Loans taken out before December 16, 2017, follow the previous $1 million limit ($500,000 for married filing separately).

To claim this deduction, homeowners must itemize. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. Because the TCJA significantly increased the standard deduction, fewer taxpayers benefit from itemizing. Determining whether deducting mortgage interest leads to savings is crucial.

Lenders provide Form 1098 annually, detailing mortgage interest paid. This form is necessary for accurate tax filing. Interest on home equity loans or lines of credit (HELOCs) is also deductible, but only if used for home improvements. If used for personal expenses, such as credit card debt, the interest does not qualify.

Private Mortgage Insurance

Homebuyers who put down less than 20% typically pay private mortgage insurance (PMI), which protects lenders against default. While this adds to homeownership costs, it previously provided a tax benefit.

PMI premiums were deductible under prior tax laws, but this provision expired at the end of 2021 and has not been reinstated as of 2024. Unless Congress renews the deduction, homeowners paying PMI cannot claim it.

Although PMI is no longer deductible, eliminating it as soon as possible can lead to savings. Once a homeowner reaches 20% equity, they can request PMI cancellation by providing proof of the home’s value, such as an appraisal. Under the Homeowners Protection Act, lenders must remove PMI automatically when the loan balance reaches 78% of the original home value, provided payments are current.

Property Tax Deductions

Homeowners can deduct state and local property taxes on their primary residence and other real estate, but this deduction is limited by the State and Local Tax (SALT) cap. The cap restricts the total deduction for property taxes, state income taxes, and sales taxes to $10,000 for single filers and married couples filing jointly ($5,000 for married individuals filing separately).

This cap, introduced under the TCJA, impacts homeowners in high-tax states like California, New York, and New Jersey, where property taxes often exceed this threshold.

Property taxes are typically included in monthly mortgage payments through an escrow account. Lenders provide an escrow statement detailing these payments, and local tax authorities send an annual bill. Only taxes paid within the tax year qualify—overdue taxes from prior years and prepaid taxes for future years do not.

For homebuyers, property taxes paid at closing are deductible. Settlement statements, such as the Closing Disclosure form, outline prorated taxes the buyer is responsible for. If a seller has prepaid taxes beyond the sale date, the buyer typically reimburses the seller at closing, and this amount is deductible. Keeping records of these payments ensures accurate deductions.

Itemizing vs. Standard Deduction

Choosing between itemizing and taking the standard deduction is a key tax decision for homeowners. Itemizing only provides a benefit if total deductions exceed the standard deduction.

Beyond mortgage-related deductions, itemizing allows taxpayers to claim unreimbursed medical expenses exceeding 7.5% of adjusted gross income (AGI), charitable contributions, and certain unreimbursed business expenses. These deductions require careful tracking and documentation. Taxpayers who frequently donate to charity or have significant medical costs may find that itemizing provides greater savings, even if mortgage deductions alone fall short of the standard deduction threshold.