What Kind of Tax Refund Can I Expect to Get Back Now That I Pay Mortgage Interest?
Written by James Hirby | Fact checked by The Law Dictionary staff
The mortgage-interest tax deduction is among the most lucrative tax breaks for married tax filers in the United States. The deduction reduces the typical homeowner's taxable income by thousands of dollars and often results in a sizable tax refund. Although it's controversial in an era of federal budget deficits and cratering home values, the deduction was once a popular feature of an otherwise unpopular tax code. It has made owner-occupied housing more affordable across the country and contributed untold billions of dollars to the national economy since its implementation.
The total amount of mortgage interest for which you're responsible is just one factor in the size of your annual tax refund. There are plenty of other pertinent qualitative and quantitative factors as well. These may include whether you have financially-dependent children or relatives, whether you qualify for the earned-income tax credit, and the amount of money that you contribute to your tax-preferred retirement account each year. If you have dependent children and regularly the maximum allowable amount into your retirement account, your refund is likely to be relatively large.
Thanks to the mortgage-interest tax deduction, your refund is likely to increase further after you
purchase your first home. However, the increase may not be as large as you expect it to be. Depending upon the amount that you're paying on your mortgage, you'll probably need to stop taking the "standard deduction " that head-of-household filers can claim each year. The amount of this deduction is currently greater than $10,000 and continues to increase periodically. In other words, you'll add at least $10,000 to your total taxable income by failing to claim the standard deduction.
If your income is relatively low and you don't have any other deductions that you can claim, you may not have to stop taking the standard deduction. Unless your home is very valuable, the value of your mortgage-interest tax deduction alone probably won't exceed $10,000. To push the total value of your annual deductions above that amount, you'll need to add in other claims as well. These might include deductions for each applicable dependent and child tax credits. They might also include special credits related to energy-efficient purchases or practices as well as certain home improvements .
To determine the exact size of your new tax refund, find an online tax calculator and plug in the applicable information. These calculators can be found on most tax-service websites.Source: thelawdictionary.org