Mortgage Deductions
February 27th, 2009
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Question: Does mortgage interest deduction phase out after 150,000 AGI?
I have heard that after 150,000 of Annual Gross Income (AGI), the mortgage interest you pay on your primary home cannot be deducted fully, is that true? If so what is the formula to use to figure out the actual tax deduction available
Answer: If your AGI exceeds $150,500 (married) or $75,250 (not married) then your mortgage deduction (and several other Itemized Deductions) may be limited.
The deduction is reduced by 3% of the amount by which your AGI exceeds the limits listed above, up to a maximum reduction of 20%.
For example, suppose your AGI is $250,500 (married) and your mortgage interest is $20,000. You exceed the AGI limit by $100,000 and 3% of $100,000 is $3,000. 20% of $20K is $4,000. You take the smaller reduction of $3,000. Your deduction is reduced to $17,000.
Actually a bunch of itemized deductions are grouped together and the reduction is applied to all of them as described above.
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Tags: deductions, finance, mortgage, mortgage deductions on taxes, tax, taxes