Mortgage Tax Deduction Calculator

Mortgage interest tax deductions are a perk that homeowners have to look forward to during tax season. Various mortgage types qualify for this homeownership benefit, including primary mortgages, second mortgages, home equity loans, or a home equity line of credit (HELOC). Additionally, as a homeowner, you can count interest you have paid on a loan related to building, purchasing, or improving your primary home against your taxable income.

Veterans, active-duty service members, and surviving spouses can take further advantage of mortgage tax deductions compared to sister conventional loans. Mortgage interest deduction allows eligible military service members to “write off” 100% of the interest paid in each tax year on their 1040 tax returns. This is a big deal since the majority of your initial monthly payments are applied towards the interest on your loan and are not considered part of your taxable income. It affects how much you will pay in taxes that year by decreasing how much you owe the federal government.

Hero Loan is here to support military service members who have purchased a home using the VA loan program to calculate the mortgage interest deduction they are eligible to receive. We will walk you through the stops of what a mortgage tax deduction is, the financial information you will need to provide to calculate your deduction, and mortgage interest deduction limits. 

Why is There a Mortgage Tax Deduction?

Let’s be honest- homeownership is not a cheap endeavor. In addition to the principal and interest you pay on a loan, there are other house-related expenses like property taxes, insurance fees, closing costs, home, and personal financial evaluations that can all add up to deter you from wanting to purchase your dream home. 

Mortgage interest tax deductions were instated as an incentive to get borrowers to buy homes. They make homeownership a more attractive option by allowing you to subtract certain expenses you incur throughout the tax year from your taxable income. Ultimately, this puts you in a better position financially by lowering the amount of money you have to pay taxes on.

What Inputs Are Needed to Calculate My Mortgage Tax Credit?

Before calculating your mortgage interest tax deduction, you will want to ensure you meet the following criteria: 

  • You filed an IRS form 1040 and itemized your deductions.
  • The mortgage is a secured debt on a qualified home that you own.

Then, you will need to do some research to enter the corresponding information into the inputs below to calculate your estimated mortgage interest tax deduction.

  • Mortgage Amount. This is the total amount you took out for your mortgage loan.
  • Loan Term in Years. This is the length of time of which you will repay your loan, typically set in increments of 15 or 30 years.
  • Annual Interest Rate. Because a portion of your VA loans has a federally-backed guarantee, interest rates on VA loans are set at competitively low rates. The majority of interest rates on VA loans fall between 2.6 and 3.1%.
  • Federal Tax Rate. This is the marginal federal tax rate you expect to pay depending on your taxable income. 
  • State Tax Rate. This is the marginal state tax rate you expect to pay.
  • Monthly Payment. This is the amount you repay on your loan each month. It can include principal, interest, and other fees that are rolled into your overall mortgage payment.
  • Interest Rate After Taxes. This is the annual effective interest rate after taxes are taken into account. It is affected by mortgage debt limits.

Be aware that in 2017, The Tax Cuts and Jobs Act (TCJA) was passed, changing the rules for mortgage interest deductions. You will need to choose between a standard tax deduction ($12,550 for single taxpayers; $25,100 for married couples for the 2021 tax year) or itemized deductions to qualify for a mortgage interest tax deduction. Itemized deductions are defined as using your mortgage loan to buy, build, or significantly improve your home. You may also be able to deduct interest on a home equity loan or line of credit (HELOC), as long as the loan was used for one of those three purposes.

Note that this calculator assumes that your itemized deductions will exceed the standard deduction for your income tax filing status. If your itemized deductions don’t exceed your standard deduction, the benefit of deducting the interest on your home will be reduced or eliminated. Keep in mind if you make a higher income that allows for your itemized deductions to be phased out, your total tax savings may be less.

What Are Mortgage Interest Tax Deduction Limits on a Home Purchased Using a VA Loan?

Apart from having to choose between a standardized and itemized tax deduction, the TCJA stipulates that there is a limit on how much you can deduct. Per IRS regulations, single-file taxpayers and married couples filing joint taxes can deduct home mortgage interest on the first $750,000; or, $375,000 if you’re married but filing separately. For those who incurred indebtedness before December 16th, 2017, a higher limitation set a $1 million for single-file taxpayers and married couples filing joint taxes. The amount is reduced to $500,000 if you’re married but filing separately. Your deduction will also be limited if you took out a mortgage for reasons other than to buy, build, or improve your home.

How Can Hero Home Loan Help? 

This mortgage tax deduction calculator is a great place to start when determining how much money you might be able to save this tax year. Hero Loan can help you answer questions about what types of home loan purchases count towards an itemized deduction. We can also help you decide if an itemized or standardized deduction is the best option to put you in a better position financially. 

Whatever your home-owning inquiries may be, our team of friendly lending experts is on standby to help by offering you a personalized, relatable customer service experience. We are happy to support our vets, military service members, and their families by providing a painless and efficient in-house underwriting process that can get you approved on a loan in as little as two weeks.

Give us a call today at 866-222-0219 to speak with a representative who can help you determine how much your mortgage tax deduction can save you this tax season. Or, feel free to reach out to us through our live chat service to discuss your mortgage tax deduction questions.