Most of your mortgage isn't deductible, regardless of income. Mortgage interest and mortgage-insurance premiums are, and Americans wipe a lot of taxes that way: $69.7 billion in 2013, the Los Angeles Times estimates. Your ability to write off mortgage interest is limited by the value of your house, but the mortgage-premium deduction is limited by your income.
The most important limit on your ability to write off mortgage interest is the size of the debt. If you take out a $1.5 million home loan, interest on the first million is all you get to deduct. If you have a second house -- and you can deduct interest on only two homes, no matter how many you own -- the $1 million limit applies to both mortgages combined. Your income doesn't matter, except that if your deductions outweigh your income, you don't get a refund for the red ink.
Mortgage companies require insurance on most loans greater than 80 percent of the home's value. You can write off all of your premiums for the year if your adjusted gross income is less than $100,000. Above $100,000, the IRS gradually reduces your deduction, using a formula described in the Schedule A instructions. At $109,000, the mortgage-premium deduction goes away completely. If you're married filing separately, the deduction starts shrinking at $50,000.
You may be able to write off any interest you prepay when you close -- "points" in mortgage-speak. The IRS has several tests to pass first, including that the loan is on your primary home, and that you're not paying more points than lenders typically charge in your area. Income is not a factor. If you don't qualify to take the points off when you close, you can deduct them gradually over the life of the loan. IRS Publication 936 gives the guidelines.
The biggest restriction on writing off mortgage costs is that it's an itemized deduction. If you don't itemize, you can't claim the deduction. The exception is if you use part of your property for business, such as a home office. Then you can deduct a portion of your mortgage costs on Schedule C, the form on which you report your business income and expenses. For example, home office occupying 8 percent of your house would get you 8 percent off your interest and premiums.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.