- 1). Determine the amount of mortgage interest that you can deduct on your income taxes. If your mortgage amount exceeds $1 million ($500,000 if your tax status is married filing separately), your deduction will be limited to less than the total interest you paid. If your mortgage amount falls below the limits, all of the interest is deductible.
- 2). Determine the total interest you paid on your mortgage for the year by consulting the form 1098 your lender sent you at the end of the year. The mortgage interest paid can be found in box 1. If you can deduct all of your interest, skip to step 5.
- 3). Divide the amount of your mortgage by the limit for your filing status. For example, if you were married filing jointly and had a $1.5 million mortgage, you would divide $1.5 million by $1 million to get 1.5.
- 4). Divide the amount of interest you paid on your mortgage by the result from step 3 to calculate how much you can deduct. In this example, if you paid $100,000 in interest, you would divide $100,000 by 1.5 to find you could only deduct $66,666.67 of the interest.
- 5). Multiply the interest deduction by your marginal tax rate to calculate how much the deduction will save you on your taxes. Your marginal tax rate equals the highest rate of income tax you pay. The U.S. uses a progressive income tax, which means the more income you have, the higher the income tax rate you pay. Finishing the example, if you were in the 35 percent income tax bracket and you could deduct $66,666.67, you would multiply $66,666.67 by 0.35 to find your mortgage deduction would save you $23,333.33.
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