Can Mortgage Interest Be Deducted?

While this seems like a simple question, your monthly mortgage payment is actual going into an escrow account for taxes and insurance, going towards a principle payment, and going towards an interest payment. In some cases, your payment may also be going towards mortgage insurance. Interest & mortgage insurance can be deducted in some cases. However, you cannot deduct principle payments or homeowners insurance. So, what can and cannot be deducted?

Can my mortgage interest payment be deducted?

Yes, your interest payments can be deducted from your income if you received a 1098 form from your lender. You will also have to itemize deductions. Always consult a tax professional. Your circumstances my vary.

Can my insurance payment be deducted?

No, homeowners insurance cannot be deducted. Yes, premium mortgage insurance (PMI) can be deducted depending on your income.

Can my principle payment be deducted?

No, the portion of your payment that goes towards the principal is generally smaller in the beginning of your term and cannot be deducted.

Can my escrow payment be deducted?

No, the payment into your escrow is not deductible. However, a portion of the payments made from your escrow account are deductible. The IRS allows homeowners to deduct
loan origination fees, points purchased, and real estate taxes.