Does your mortgage interest deduct dollar for dollar?

Question

Lets say i owe $10,000 in taxes, but I have $9,000 in mortgage interest, would I owe $1000?

Answer 1

It actually isn't even as good as some of the answers would lead you to indicate.

Mortgage interest does NOT deduct dollar for dollar on taxes (that would be *so* sweet). If you owe $10,000 in taxes before, with mortgage interest deduction you will owe between $7500 and $10000 in taxes. Doesn't seem like a good deal anymore, does it?

Let me explain, mortgage interest (along with property taxes and state income taxes) are part of your itemized deductions from your federal taxes. Itemized deductions are a replacement to the standard deduction. The standard deduction for a married couple is $10,700 (for a single person, the standard deduction is $5350 -- this used to more than half of the married standard deduction and this was the 'marriage penalty' that lawmakers worked so hard to eliminate recently). If your mortgage interest and property taxes (and state income taxes, if applicable) are approximately $10,700 you save NOTHING.

$9000 in mortgage interest (by itself) will save you $0 on your taxes. Couple the $9000 with property taxes and state income taxes and you will save the excess above the standard deduction for a married couple ($10700 for 2007) multiplied by your highest federal tax rate (could be 15% or 28% or if you make a ton of money, more). In this case your savings are going to be minimal... Sorry about that!

good luck!

Answer 2

Sorry, no. All you can deduct is the TAX on income equal to the mortgage interest.

For example, if your marginal tax rate is 20% you can deduct 20% of $9,000 or $1,800 and would owe $8,200 in taxes.

Answer 3

No, the intere4st and other deductions are taken off of your income. Your deductions will lower your income so you will pay less tax than with no deductions but not dollar for dollar.

for example (simplified) if you had $95,000 in gross income and $11,000 in miscellaneous deductions and $9000 in mortgage interest.

95000 - (11000 + 9000) = 75000

$ 75,000 would be your adjusted gross income and that would be where your tax would be calculated from.

Answer 4

No, it gets subtracted from your income before your tax is figured, so at most it gives you a percentage off your tax equal to your tax bracket - if you're in a 25% bracket, you'd get $2250 off your tax for a $9000 deduction. If your other itemized deductions didn't at least equal your standard deduction, your savings would be less than that.

Answer 5

No, they only take off the taxes you have paid for your mortgage interest.