For federal tax purposes, the mortgage interest you pay is taken as a deduction. Therefore, you don’t pay federal income taxes on the amount you spend on mortgage interest for that year. In general, your tax liability is reduced by your mortgage interest if you own the loan and itemize your deductions. Your individual situation may be different, however. It is best to consult with a tax professional for an accurate assessment of how mortgage interest may reduce your taxes.
Find how much you spend, or will spend, yearly on mortgage interest. If you have a mortgage, look on the statement for how much in interest you paid in one month and multiply this by 12. If you are in the process of obtaining a loan, ask your mortgage company for an estimate of the first month’s interest payment.
Find your federal tax bracket, which can change yearly. The Internal Revenue Service updates this information yearly as it becomes available. The eFile.com website also has federal tax brackets listed for singles and those who are married.
Multiply your tax bracket rate by the amount you pay towards mortgage interest in one year. This will be an estimate of your tax savings from deducting mortgage interest. For example, if you pay $12,000 in mortgage interest in one year and are in the 25 percent tax bracket, your tax savings will be $3,000.
- Jupiterimages/Photos.com/Getty Images
- How to Calculate a Salary After Taxes
- How to Calculate Monthly Income Tax
- How to Calculate IRA Liquidation Taxes
- How to Calculate After-Tax Yield
- How Are Taxes Calculated with an Early Withdrawal From a TSP?
- What Are the Tax Consequences of Quitclaiming a Deed to My Son?
- How to Enter a 1099 Miscellaneous Form
- How to Prepay Taxes
- Contributory Vs. Noncontributory Pension Plans
- How to Calculate the Taxes on Overtime