Mortgage interest and
property tax deductions
The U.S. tax system incentivizes homeownership by allowing certain home-related expenses—such as mortgage interest and property taxes—to be deducted from your taxable income. For example, if you earn $50,000 and qualify for $20,000 in deductions, you would only pay federal taxes on $30,000 of income. While some states offer similar tax benefits, we focus solely on federal implications.
Itemizing vs. Standard Deduction
To claim these deductions, you must itemize them instead of taking the standard deduction—a fixed amount determined by tax law based on your filing status (e.g., single, married, or head of household). For instance:
If you earn $50,000 as a single filer and qualify for $10,000 in property-related deductions, itemizing would not be beneficial because the standard deduction for 2024 is $14,600.
Conversely, if your property-related deductions exceed the standard deduction, itemizing could provide a financial advantage.
Note: US Tax policy is very much 'up in the air' with the TCJA sunseting. In our model, we assume the existing 2025 tax policy (as of April 2025) is renewed and unchanged. This may or may not be a realistic outcome. We will adjust our model when there is further clarity.
Our Model
Our homeownership cost calculator estimates potential tax savings by focusing on the extra benefit beyond the standard deduction. Since you would receive the standard deduction amount regardless of whether you itemize, this approach highlights only the added value of purchasing the home and itemizing each year.
For example:
If you earn $50,000 and qualify for $20,000 in property-related deductions, this exceeds the standard deduction by $5,400 ($20,000 - $14,600).
The net benefit of itemizing would be calculated as $5,400 multiplied by your effective tax rate. If your effective tax rate is 25%, your tax savings would be $1,350 (0.25 × $5,400). So we would show a net tax deduction benefit of $1,350.
It’s important to note that tax deductions related to mortgage interest decrease over time. As your loan matures:
The portion of your monthly payment applied to interest (which is tax-deductible) decreases.
The portion applied to principal increases.
This means that while tax deductions are largest in the early years of a mortgage, they shrink over time. Eventually, itemizing may no longer provide an advantage over taking the standard deduction. We factor all that into the cost forecasting chart.
Although fixed-rate loans keep monthly payments consistent throughout their term, after-tax savings diminish as interest payments decline. That’s why it’s essential to evaluate tax benefits over the full loan term—not just in year one. Our forward estimates help you understand these long-term implications by providing a clearer financial picture beyond the initial year of homeownership. Also, note these 'benefits' are not realized until taxes have been filed. You should always be prepared to face the costs of pre-tax figures.
Items we consider
Filing status – For 2024, deductions are as follows: single $14,600, married filing jointly $29,200, and head of household $21,900. In 2025, these amounts will slightly increase. These figures increase further after age 65, although we do not consider these factors. Property taxes may be reduced or eliminated for some areas after a certain age, although we do not consider these factors either.
Annual interest expenses – The amount of your mortgage each year that constitutes interest payments. This figure will decrease each year as you pay down the loan balance. In the early years of a mortgage, you will be able to deduct a majority of payments as they are primarily interest. Over time, the amount you can deduct will be less and less (as payments toward principal become more dominant). For 2025, you can deduct the first 750k of residential indebtedness as a household. For instance, if you are paying interest on an 800k mortgage, you may only deduct expenses up to 750k of that outstanding loan.
Annual property taxes – The amount of state and local property taxes you pay each year. There is a cap on the amount you can deduct each year. This is called the State and Local Tax (SALT) deduction cap. The current cap is 10k per household, although historically it has been much higher. The current 10k cap (enacted as part of the 2017 Tax Cuts and Jobs Act) is set to expire at the end of 2025 and is subject to extension, repeal (no cap), or increase (likely to 20k or 30k).
Marginal Federal tax rate – The annual benefit from the deduction is a function of your personal marginal tax rate at the Federal level (and sometimes state). We assume a tax rate based on the income provided (optional). Tax policy is complex and every situation is different. We do our best to estimate savings, but it is important to consult a tax professional for exact figures.
Deduction benefits vs. standard deduction – If you do not benefit from itemized filing, we do not apply any benefit to your cost estimates. When tax savings are provided, they are presented net of the standard deduction. In other words, we do not credit total tax benefits… we only credit benefits in excess of what you already would have gotten back (via the standard deduction).
Notes
US tax policy is complex and everyone's situation is different. We provide estimates on a best-efforts basis, but it is important to verify your unique situation with a tax professional. Although we may collect email or other contact information, we do not make a connection between personal financial information input and individual contact information or name. You cannot save sensitive financial information to your account and must manually input for each search. We do this to maintain user privacy. Our estimates are modest in nature and actual results may vary. Significant home price appreciation or depreciation can have a significant impact on actual results. These estimates are for educational purposes. For more information, please visit our terms and conditions.