This tax season, my household is claiming the mortgage tax deduction. So we’re doing that dreaded thing everyone whispers about: itemization. Like most taxpayers, our household usually takes the standard deduction, which is a specific dollar amount that reduces our taxable income without requiring us to submit extra paperwork.
But in 2024, we paid a very high amount of mortgage interest, more than we ever have as homeowners. In order to take advantage of the mortgage interest tax break, we have to itemize and file Schedule A of Form 1040 to prove we have tax deductions amounting to over $29,200, which is the standard deduction for taxpayers who are married filing jointly. More on that below.
TAX SOFTWARE DEALS OF THE WEEK
Deals are selected by the CNET Group commerce team, and may be unrelated to this article.
Since we withdrew money from our 401(k), we expect to owe the IRS money this year. However, by itemizing and deducting the interest paid on our mortgage debt, along with several additional tax breaks, we can take more than the standard deduction and lower our tax bill even more.
Itemizing makes our tax accounting a bit more complicated, but we’re trusting the home and business software from TurboTax to walk us through the process. I’m a self-employed freelancer, and I find the software functions well for my home and business taxes. Plus, it helps me find homeowner deductions and credits I qualify for by asking straightforward questions.
What is the mortgage interest deduction?
The mortgage interest deduction allows homeowners to deduct the interest on a qualifying mortgage they paid during the previous tax year. The deduction can apply to your primary residence or second home, though there are some restrictions. You can also generally deduct interest from a home equity loan or home equity line of credit as long as you used the funds to buy, build or improve your home.
In some cases, the mortgage interest deduction may allow you to claim any mortgage points you paid to lower your interest rate, late payment charges and prepayment penalties you incurred as a result of paying off your mortgage. The amount of eligible mortgage debt can be up to $750,000 if you’re married or up to $375,000 for individuals and those married filing separately.
Your lender should provide a Form 1098, which details how much mortgage interest you paid during the tax year. It’s helpful to review the IRS Publication 936 to see whether you qualify for the mortgage interest deduction and how the specific tax rules might apply to your situation.
Read more: Should you itemize your taxes instead of taking the standard deduction?
Itemizing instead of the standard deduction
The vast majority of taxpayers choose to take the standard deduction since it’s much easier than itemization, and you don’t have to keep track of all your qualifying expenses. The standard deduction for the 2024 tax year is $14,600 for single filers and $29,200 for joint filers. In most cases, you’re better off taking the standard deduction.
However, the mortgage interest deduction is not available to those who choose a standard deduction. If you’re a homeowner and the total amount of your mortgage interest, property taxes, real estate taxes and other miscellaneous expenses are greater than the standard deduction, you could benefit from itemizing.
In our case, for itemization to be worth the hassle for our family, we’d need to accumulate more than $29,200 total in itemized deductions, including our mortgage interest. Fortunately, we can take additional types of itemized deductions to tip the scales in our favor and offset our tax bill.
Other itemized deductions to consider taking
The Schedule A form helps us calculate the itemized deductions we can take for state and local taxes, mortgage interest, business expenses and charitable donations.
Donations to charity: Before moving, we amassed quite a few trips to our local donation center. I kept the slips we received at dropoff and detailed our donations so we could claim them as charitable donations on taxes. We’ve also tracked other types of contributions made to nonprofit organizations. This year, even though bigger donations of furniture and other moving items won’t significantly lower our tax bill, every bit helps.
Income, sales, real estate and personal property taxes: We’ll also take the state and local tax deduction, which allows us to deduct up to $10,000 in state and local taxes. Since our home was the previous owners’ second home — not primary residence — we paid the property taxes as if it were a second home when we closed. Those taxes tend to be higher compared to a primary residence. The deduction will give us a little extra tax relief.
Home office and business expenses: I’m self-employed and own a small business, so I also deduct expenses and the cost to run my home office. Considering the expensive energy bills for heating our new home, it’s a significant deduction. Not everything qualifies, so I use Turbo Tax to help categorize these expenses and determine what percentage of utility costs are eligible based on the size of my office.
How to determine if itemizing is right for you
While itemizing makes sense for my family this year, it isn’t always the right call for everyone. Most taxpayers are better off keeping it simple, especially if the generous standard deduction is more than the total for itemized deductions.
However, you might be able to maximize your refund or lower your tax bill if any of the following apply to your tax situation:
- You are a homeowner with a mortgage
- You paid hefty state or local income or property taxes
- You donated a significant amount to a charity or nonprofit
- You had significant out-of-pocket medical or dental expenses
- You were the victim of losses from a federally declared disaster
- You had serious gambling losses (and you also claimed the winnings on your taxes)
Throughout the year, keep a record of any receipts of repairs or purchases that may be tax deductible.
If you think you have enough itemized deductions to exceed the standard deduction for your filing status, invest in tax software or an accountant to help you do the math. Having someone else double-check the rules to avoid an audit and eliminate confusion is worth every penny.
