Do you receive all the interest paid on a home loan back when you file your income taxes?

Question

It's my first year owning a home, and I have heard different things.
Thanks!

Answer 1

Interest paid on a home loan is fully tax-deductible. This means that in most cases, you can reduce your taxable income by this interest amount.

A reduction in taxable income, means a reduction in total tax that you have to pay. A reduction in total tax usually translates into a bigger refund.

That is the answer in a nutshell.

If you make over $100k there is a chance only a percentage of your interest will be deductible.

And if you are in the circumstance where your total tax is at or near zero, the interest will make little or no difference at all in how much you get back.

The IRS uses a term called "refundable credit". If interest paid on a home loan was considered a "refundable credit", you would get it all back "dollar for dollar". However it is not a "refundable credit", it is only considered "fully tax deductible".

Many tax questions do not have cut and dry answers. I apologize if I gave you too much information.

Answer 2

Not realy. As you know from previous years... you calculate your gross income and from that you deduct either a set amount (based on your filing status) called the standard deduction or you can itemize. When you itemize you add up all the things you can deduct including your mortgage interest, points, real estate taxes, auto taxes, medical bills, charitable donations, etc. It is only worth it to itemize if your itemized deductions are more than the standard deduction. Depending upon when you purchased your home and the amount of interest paid and the taxes, you may find that the standard deduction is more.

Now.. in either case (Standard or Itemized) these deductions are removed from your gross income and produces your Taxable income. So... you are not 'getting the interest back' but instead you are not paying taxes on the interest. Thus it reduces the amount of taxes owed but in porportion to your current tax rate.

Example, if you were to itemize and your interest payment were $1,000 and your tax rate is 26%, then you would save $260 in taxes. But.. that's only if your other itemized deductions add up to more than the standard deduction. (It usually does.)

I suggest you get some assistance for your first year from someone who can teach you what to do in future years. You might even consider purchasing a tax program (TurboTax, HR Block Tax, etc) as most of these will do the itemized/standard comparison for you.

Good luck and I hope this helps!

Answer 3

Interest income is tax deductable. A tax deduction or a tax-deductible expense represents an expense incurred by a taxpayer that is subtracted from gross income and results in a lower overall taxable income. So, in English, this means you will not get everything back, but you won't be paying as much as you would otherwise. Almost all interest related to personal income is not tax deductable, the exception being the interest on your mortgage, which makes owning a home so desirable.

Answer 4

Home mortgage interest is included in "itemized deductions". If your total itemized deductions (mtg interest, chariies, health costs above certain levels) are above the "standard deduction" for your filing status, you would use that larger amount to arrive at your taxable income. Unfortunately, it is not a dollar for dollar credit, so you will not back "all the interest you paid". Sure would be nice though.

Answer 5

No. You paid interest to the bank. They'll keep it. After the end of the year, they'll send you a Form 1099-INT that reports how much interest you paid. You can claim the interest as a deduction on your tax return (Sched A), so it reduces the amount of taxes you might owe on your income tax return.

Congratulations.

Answer 6

Probably not the first year. The only way you can deduct your mortgage interest is on a Schedule A. You need to have enough to itemize(which means more than your standard deduction) for 2006 <10,000 for married filing joint>So in the future if you plan to use this keep good track of any tax you pay school, prop, local, last years tax prep fee, gifts to charities, ect.

Answer 7

No, you do not received the interest back that you paid. You can write off all the interest paid on your taxes. This and other items such any home improvements and additions can add to you receiving a refund. Its best to check with a Tax person for all the writeoff you may be entitled too. Good luck!

Answer 8

You get a deduction for the amount you've paid in interest. You don't get it back in its entirety. The simplest way to think about it is that you get back a percentage of income tax proportional to the percentage of interest to total income.

Answer 9

You can claim the full amount as an itemized deduction. Unless your tax rate is 100%, you will not reduce your taxes by the full amount of the deduction. In addition, itemized deductions only provide a benefit to the extent they exceed your itemized deduction.