Your guide to mortgage tax deductions for 2022
It’s about time to start filing your 2022 taxes. And many homeowners will be wondering about mortgage tax deductions.
As a general rule of thumb, you can deduct only part of your mortgage costs — and only if you itemize your deductions. If you’re taking the standard deduction, you can disregard the rest of this information because it won’t apply.
So, which mortgage costs are tax-deductible and which aren’t? Here’s what you should know.
Note: We are exploring only federal tax deductions for the 2022 tax year, filed in 2023. Deductions for state taxes will vary. This article is for general informational purposes only. The Mortgage Reports is not a tax website. Check the relevant Internal Revenue Service (IRS) rules with a qualified tax professional to ensure they apply in your personal circumstances.
In this article (Skip to...)
- Mortgage deductions
- Mortgage interest
- Mortgage insurance
- Closing costs
- Second homes
- Second mortgages
- Discount points
- Should I itemize my deductions?
- Other ways to save
- Mortgage deductions FAQ
How mortgage tax deductions work
Before you worry too much about making mortgage tax deductions, let’s make sure they apply to you.
As mentioned above, mortgage expenses are tax-deductible only if you decide to itemize your deductions. If you take the standard deduction, you won’t be writing off individual deductions, such as mortgage costs.
Most Americans — about 87% of them, according to the IRS — take the standard deduction.
Standard deduction for 2022 taxes
If your deductions, including your mortgage costs, won’t add up to more than your standard deduction, you’re typically better off taking the standard deduction.
For 2022 tax returns, the government has raised the standard deduction to:
- Single or married filing separately — $12,950
- Married filing jointly or qualifying widow(er) — $25,900
- Head of household — $19,400
If you can deduct more than your standard deduction, you probably should. Many taxpayers can pay lower taxes by itemizing deductions on Schedule A of IRS 1040. Deductions lower your taxable income. Sometimes, deductions can lower your tax rate, too.
Mortgage interest tax deductions
So you plan to itemize your deductions for the 2022 tax year. What does that mean for your mortgage tax deductions?
Your biggest tax break should come from your mortgage interest payments. That’s not your full monthly payment. The amount you pay toward your loan principal isn’t deductible. You can deduct only the interest portion of your payment.
You can find the amount of loan interest you paid in 2022 on your mortgage interest statement, Form 1098. Your mortgage lender or loan servicer should mail the form or make it available online.
Caps on amount of interest you can deduct
Depending on the size of your mortgage, you may encounter caps on the interest you can deduct. These caps can vary based on the age of your loan.
- For a mortgage that was already in place on Dec. 15, 2017, married couples can deduct interest on mortgage debt up to $1 million (or $500,000 each, if you’re married and file separate returns).
- For a mortgage opened after Dec. 15, 2017, the cap is $750,000 (or $375,000 each, if married filing separately).
To be clear, if your loan size exceeds these maximums, you can still deduct some of your interest. But only for interest paid on a loan amount up to those caps.
New for 2022: No mortgage insurance tax deductions
Beginning in the 2022 tax year, homeowners can no longer deduct mortgage insurance premiums, according to IRS Publication 936.
If you’re still working on a federal income tax return for a previous year, 2020 or 2021, you can still write off mortgage insurance premiums for those years. But the mortgage insurance tax benefit expired at the end of 2021.
It’s possible Congress could bring back the mortgage insurance tax deduction for future tax filers. But it’s not on the table in 2022.
Closing cost tax deductions
If you were new to homeownership in 2022, you may be able to write off some of the closing costs you paid. But only some closing costs are deductible. Those are usually:
- Property taxes paid in advance at closing
- Discount points paid to your mortgage lender — See below
- Prepaid interest — The interest you pay for the remainder of the month in which you close
- Origination fees — The amount your lender charges for processing your application
- Mortgage insurance premiums — In some circumstances. See above
No other closing costs (home appraisal, inspection, escrow fees, title insurance, and so on) are generally deductible.
Your down payment and earnest money are not deductible, either.
Second home tax deductions
You can take mortgage interest deductions on a second home (perhaps a vacation home) as well as your primary residence.
But the mortgage(s) must have been used to “buy, build, or substantially improve” the property, in the words of Turbotax. And there’s a limit of two homes; you cannot deduct interest on three or more.
If that second home is owned by your son, daughter, or parents, and you’re paying the mortgage to help out, you can only deduct the interest if you co-signed the loan.
Tax deductions for second mortgage loans
If you have a second mortgage, such as a home equity loan or home equity line of credit (HELOC), you may be able to deduct interest paid on those loans.
It depends on how you used the home equity debt:
- If you used the money to “buy, build, or substantially improve your main residence or second home” you can deduct the interest
- If you used money from the loan for another purpose — to pay off credit card debt or student loans, for example — you can’t deduct the interest
This rule went into effect with the Tax Cuts and Jobs Act (TCJA) of 2017.
And, again, there’s a cap. You can only deduct the interest on the first $100,000 of your second mortgage’s value.
Refinance tax deductions
A “rate-and-term refinance” is one where your new mortgage balance is effectively the same as your old one. A rate-and-term refinance should not generate any new tax deductions.
However, a cash-out refinance may change things.
You can still deduct interest on your original mortgage balance. But you can only deduct interest on the cash-out amount if it was used to buy, build, or substantially improve your main residence or second home.
So you won’t be able to deduct interest on cash-out money you used for any other purpose, such as debt consolidation, a family wedding, a vacation, and so on.
The good news is that you do not have to pay income tax on funds received from cash-out refinance. It’s a loan that has to be repaid with interest. So it’s not taxable income.
Discount point tax deductions
Discount points (aka “mortgage points”) allow you to buy yourself a lower interest rate by paying a lump sum at closing. In the past, you could deduct the cost of discount points at the end of the tax year in which you paid the lump sum. But no more.
Now, you can still deduct discount points but only pro-rata over the lifetime of your loan.
For example, if you have a 30-year mortgage, you deduct 1/30th, or 3.3%, of the lump sum each year. With a 15-year loan, you deduct 1/15th, or 6.66% of the cost.
If you refinance with a different lender within the lifetime of the mortgage, you can deduct all the remaining points costs in that year. But if you refinance with the same lender, you continue as before.
Should I itemize deductions or use the standard deduction?
As we’ve already said, the mortgage interest deduction applies only when you’re itemizing income tax deductions — not when you’re writing off the IRS’s standard deduction.
Most Americans take the standard deduction. So when their mortgage lender sends Form 1098, which shows interest payments, it has no impact on their tax bill.
What about you? Should you itemize your deductions or use the standard deduction?
The answer depends on how much you could deduct. If you can deduct more than the standard deduction (see amounts above), you can save by listing all your deductions on Schedule A.
How much is mortgage interest, anyway?
Can mortgage interest, by itself, justify itemizing deductions? For some home buyers, it can.
Let’s say you’re married filing jointly and that you recently bought a home. Your 30-year mortgage’s balance is $750,000. At a mortgage rate of 7.5%, you could easily pay $50,000 in mortgage interest during the first calendar year of the loan. That far exceeds your standard deduction of $25,900.
As time goes on, your annual interest payments will go down. During the last full year of the loan, for example, you’d owe only about $3,500 in interest which is only a fraction of the standard deduction.
Another example, on a $300,000 home
Median home buyers are likely to have a loan balance in the $300,000 range. In this case, at 7.5% on a recently opened loan, interest might cost about $20,000.
This amount, by itself, wouldn’t surpass the standard deduction for a married couple. It would exceed the standard deduction for someone who’s filing individually, however.
How do you know for sure?
These scenarios are designed to give you an idea how much new homebuyers pay in interest. Keep in mind the actual amount you paid in interest is unique to you.
The good news: It’s easy to find out. Just check your 1098 form from your lender. If you pay your mortgage payment online, you can probably find the form inside your account.
If the amount you paid in interest exceeds your standard deduction, you could save money by writing off your interest payments.
Check with a tax professional
By its nature, income tax law is complicated, especially when you start itemizing your deductions. If your interest barely exceeds your standard deduction, you might not save enough to justify the extra time and expense of itemizing.
Of course, if your interest is only one of many deductions, compare your combined deductions to the standard deduction to see whether it’s worthwhile to itemize.
This post shouldn’t be used as tax advice — just as general information. Check with a tax professional if you’re still not sure whether it’s worth it to write off your mortgage interest for 2022.
Besides interest: Other ways homeowners can save at tax time
Writing off mortgage interest is the most common way for home buyers to lower their tax bills. Homeownership has some other tax benefits, too.
Home office deductions
If you’re self-employed, or a business owner, and you use part of your home as a home office, you can write off your home office expenses, lowering your taxable income.
Renters can do this, too. To qualify, you’ll need a space in the home that you’re using exclusively for business, and you’ll need to record those expenses.
Capital gains exclusions
If you sell your main home, or primary residence, you shouldn’t be responsible for the full capital gains tax on the transaction.
- If you’re filing separately, up to $250,000 in profits from the home sale will be excluded from capital gains
- Married couples can exclude up to $500,000 in profits from a home sale
If you lived in the home for two out of the past five years, you can qualify for this exclusion.
Rental property expenses
Homeowners who rent out their real estate property can write off maintenance and materials expenses. Landlords should keep accurate records of rental income and expenses.
Some cities and counties offer tax credits for homebuyers who choose to buy in certain neighborhoods. If you bought a new home in 2022, check your city’s website to see if you qualify for a tax credit.
Mortgage tax deduction FAQ
You can’t deduct your full monthly payment. But you can deduct the portion of it that goes to interest. At the start of your loan, a large portion of each monthly payment is interest. By the end, almost none of it is. Interest payments fall steadily over the life of your mortgage. Again, you can only make this deduction if you itemize your deductions.
Yes. But not as a lump sum. With a 30-year mortgage, you deduct 1/30th of the cost of the points each year. With a 15-year loan, you deduct 1/15th. And so on.
No. As of 2022, private mortgage insurance premiums are no longer deductible. Congress changes tax law periodically, so it’s possible this deduction could come back in future tax years.
You don’t pay income tax on the amount you cash out. You may be able to deduct interest paid on the cash-out amount if the money was used to buy, build, or substantially improve your primary or second home.
Again, interest on home equity loans isn’t usually tax-deductible. But it should be if you used the proceeds of your loan to buy, build, or substantially improve your main residence or second home.
A HELOC is a second mortgage, just like a home equity loan. And the rules are the same. Namely, you can deduct interest only if you used the proceeds of your loan to buy, build, or substantially improve your main residence or second home.
Some can be. But it’s a shortlist that mostly involves small sums. However, you can deduct your lender’s origination fees (even if your lender paid them for you), which can be worthwhile. See above for the full list. Other than that, you can’t deduct most of the big-ticket items, such as fees for your appraisal, inspection, title insurance, escrow fees, and so on.
Deducting interest can save money
Mortgage expenses are tax-deductible if you itemize your taxes rather than taking the standard deduction. And even then, the rules can be complex.
The Mortgage Reports is not a tax website and this information is meant for general guidance only. Speak with a licensed tax professional about your situation before taking any next steps.
If you prefer, the IRS has an online, interactive tax assistant that might help you. You can also download the IRS Publication 936 guide, “Home Mortgage Interest Deduction. For use in preparing 2021 Returns” from its website.