In 2024, that standard deduction for a single person is $14,600, and $29,200 for a married couple filing jointly. Deductions being limited to $750,000 for homes bought after December 16, 2017 – and rock-bottom interest rates in 2020, 2021, and early 2022 – meant it often wasn’t possible for borrowers to itemize and deduct mortgage interest.
Deducting on mortgage rates ‘more meaningful’ than in previous years
Mortgage rates plunged at the onset of the pandemic, with the average 30-year fixed-mortgage loan in the US plummeting to 2.67% at the end of 2020 before beginning to spike in the opening months of 2022.
When rates were at those scarcely seen lows, the mortgage interest deduction, in addition to other items, wouldn’t reach the same level as the standard deduction. However, higher interest rates now mean it could be in homeowners’ interest to exceed the standard deduction, itemize their tax returns, and deduct interest paid on their mortgage.
Borrowers’ ability to deduct mortgage interest is now more meaningful than it’s been in years, Kevin Leibowitz (pictured top), chief executive officer and founder at Grayton Mortgage Inc. said – potentially presenting something of a “silver lining” with historically low rates off the table.
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— Mortgage Professional America Magazine (@MPAMagazineUS) July 8, 2024
The benefit of taking that option is clear. “You’re reducing your tax liability and in doing so, by virtue of owning a place, it’s one way to offset the hurt of higher interest rates,” he told Mortgage Professional America. “You’re making this deduction possible and then once you’re past that standard deduction, you now open up to a whole host of deductions on Schedule A which were not available to you when doing the standard deduction.”
