Tax Benefits of Having a Mortgage

Written by abigail

May 11, 2021

Photo by Romakoma via Shutterstock

As a homeowner you want to be aware of the various tax breaks you can get in regards to your home and mortgage. Here are a few ways you can save money if you use itemized deductions when you pay taxes.

Mortgage Interest Deduction

If your mortgage is secured by your home, or the proceeds are utilized to build, buy, or significantly improve your primary residence or second home, then you may be able to deduct the interest you pay on mortgage debt. This has a cap, however. You can only deduct the interest paid on $750,000 (joint filing) or $375,000 for married but filing separately. Be aware there are limits on the amount. If your mortgage is greater than 1 million, you can’t deduct all of the interest.

Interest on a Home Equity Line of Credit (HELOC)

You can also deduct the interest paid on a HELOC, but only if it is used for the proper purposes. You can’t use the money to pay for schooling or new cars. The money has to go toward buying, building, or improving a property. So, you can go ahead with that needed remodel without tax ramifications. Increasing the equity in your home can also help with tax consequences of a future sale.

Profit From Selling Your Home

Whenever you make money from selling something, the IRS shows up wanting a portion of your profits. However there are some limits to their taking a cut of your money when you sell your home. If you lived in your home for two out of the last five years before you sold it, you don’t have to pay taxes on the first $250,000 of profit if your single, and double that if you’re married. This is also where you want to have proof of expenses associated with maintaining or improving your home. You can add these expenses to the cost of your home to reduce the amount of your capital gains.


If you paid discount points when taking out your mortgage, you can deduct them, usually in the year you pay them. Sometimes, this can extend over the life of the loan. You need to have legitimately paid points to reduce your interest rate, though. They can’t be fees disguised as points.

If the seller paid the points for you, you can still deduct them. Keep a copy of that year’s tax return until after you sell your home or the suggested 7 years, though. You’ll need it when you sell to calculate how much to reduce your home’s cost basis (by the amount the seller paid for your points).

Private Mortgage Insurance (PMI)

The IRS lets you deduct all of the following mortgage insurance types: Private mortgage insurance, VA loan funding fee, USDA loan guarantee fee, and FHA loan up-front mortgage insurance premiums. These deduction do have an expiration though, so make sure you check current tax rules. Also, once your adjusted gross income goes above $100,000 you no longer get this deduction.


These are only a few of the tax benefits associated with a mortgage and home ownership.  There’s more we can tell you about as we help you through the process of home ownership. If you feel ready to begin this journey, reach out to us at . We want to use our expertise to make your life easier.

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