DC MORTGAGE INTEREST DEDUCTION

Reduce Your Taxable Income

2017 Update on the Mortgage Interest Deduction

The Mortgage Interest Deduction has long been one of the perks for homebuyers who can not afford to pay cash to purchase a home, especially during periods when mortgage interest was especially high. In early 2017, Steven Muchin, Trump’s Treasury Department head, said he will cap MI, while allowing “some deductibility.”  There is already a mortgage interest cap on loans up to $1M if married and filing jointly, $500k for those who file individually. In Washington DC, where the 2016 Median Sales Price of a home was $545,000 against the national average of $200k, this is an especially pertinent issue. The deduction only applies to those taxpayers who itemize. Try Bankrate.com’s MID calculator to see how this change would affect you.

What Does the Mortgage Interest Deduction Do?

  • A mortgage interest deduction allows homeowners to reduce their taxable income by the interest paid on the loan which is secured by their principal residence (or, sometimes, a second home).
  • If a home buyer earns $100,000 a year, paid $10,000 last year in interest and claimed the mortgage interest deduction, the IRS would tax only $90,000 of his income (not including additional deductions).
  • The IRS also allows deductions on interest for second homes or on home equity loans of $100,000. or less and for mortgages of 1 million dollars or less.
  • The mortgage interest deduction is most beneficial for homeowners within the first five years of their purchase since the majority of your monthly payment goes to interest, not principal, during that time.
As always, it is important to discuss possible deductions with your tax advisor or CPA. Tax deductions can change each year and with individuals’ situations, so be sure to consult an expert.

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