As a new homeowner, you've probably already heard about the Mortgage Interest Tax Deduction. One of the IRS's most popular and lucrative tax deductions, the Mortgage Interest Tax Deduction allows certain homeowners to deduct the interest that they pay on their mortgages from their "top-line" tax calculations. In other words, the deduction permits them to subtract the interest that they pay to their mortgage lenders from their total taxable incomes. Although the deduction is subject to some cursory limits and can't be used by high-income homeowners, it's exploited by tens of millions of American homeowners each year. In fact, it's seen as one of the principal drivers of the U.S. housing market.
In order to claim this powerful deduction, you'll need to itemize all of your tax deductions using an IRS guide known as Schedule A. While you won't need to turn this form in with your actual tax return, it's necessary to determine the value of the itemized deductions for which you're eligible. If the total value of these miscellaneous deductions doesn't exceed the value of the "personal deduction" for which every American taxpayer is eligible, it won't make sense for you to take advantage of the Mortgage Interest Tax Deduction. This won't be a total loss: Since you're still eligible for the personal deduction, you'll be able to subtract as much as $10,000 from your top-line income and save up to $4,000 in potential tax payments.
If you do qualify for the Mortgage Income Tax Deduction, you'll need to itemize any additional deductions for which you might qualify. Unfortunately, you can't pick and choose the deductions that you wish to claim. If you claim the personal deduction, you're not eligible to claim any itemized deductions. If you claim a single itemized deduction, you're not eligible for the personal deduction. While you're not required to claim all of the itemized deductions for which you're eligible, it would make financial sense for you to do so.
Recent changes to the tax code have made the process of claiming itemized deductions somewhat less lucrative. In the process of raising taxes on certain high-income earners, the U.S. Congress has also signaled its intention to "cap" the dollar value of the itemized deductions that any single taxpayer may claim. If you're eligible for more than $50,000 in itemized deductions as a single filer or $100,000 in deductions as a joint filer, you may not be able to claim additional deductions.