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I’m looking for information and advice regarding the mortgage interest tax deduction. My spouse and I are married, filing jointly, but only I have an income. We’re first-time homebuyers considering purchasing a house worth around $300,000. While we have enough savings to pay for it outright, we’re debating whether taking a mortgage could be more beneficial, especially in terms of potential tax deductions.

Some specifics:

My federal tax withholding are around $2,000 per month. We’re curious to know how much mortgage interest we could deduct and if there’s a threshold or limitation. Would it make financial sense to take a mortgage for tax benefits, or would paying in full be a better choice? I’d appreciate any insights, tips, or links to official resources.

Thanks in advance for your help!

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    What do you mean by "federal tax deductions"? Are you talking about the amount that is withheld from your paycheck? Or are you actually generating 2k worth of deductible expenses every month?
    – Justin Cave
    Commented Dec 4 at 18:22
  • I removed the "benefits" tag which is about employment benefits, and added a "united-states" tag since this appears to be a US-based question.
    – Vicky
    Commented Dec 4 at 18:48
  • Sorry, yes. It is the federal tax withholding.
    – jorge
    Commented Dec 4 at 22:07

1 Answer 1

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In general paying interest just to get a tax deduction costs you more money than save.

If all the interest is deductible your tax savings is only part of the interest you pay.

For example $300K house, $250K mortgage at 6%. That first month the interest will be about 0.5% of the balance or $1,250. That would mean even though the amount of interest will go down each month, your interest will still approach $15,000 for the first 12 months. If you are in the 22% tax bracket, that means your Federal taxes would go down by $3,300. for the year.

This is only an estimate because it depends on if you itemize or take the standard deduction. There is also a limit on the State and local income taxes you can deduct itemize.

That can mean that only some of the interest is deductible.

  • In 2025 the standard deduction for a couple is $30,000.
  • As an example if you didn't have the mortgage your other things you can itemize (state income tax, property tax, charity...) was $24,000.
  • When you add the mortgage into the equation the first $6,000 of interest was used to get above the standard deduction.
  • That would mean that having a mortgage would cost you $15,000 in interest but you would save (22% of $9,000) or $1,980.

Now getting a mortgage because you don't want to bring your savings close to zero, does make sense.

Note: I ignored state income taxes in this answer.

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    Adding to this, depending on the returns you're getting on your savings, it makes a lot of sense to invest the majority of your money and take the mortgage anyway. If you receive a 10% average return on your $240,000 after tax, even if your interest is 7-8% on your mortgage, you'll still come out ahead by the time the 30 years has passed. IMO that's something to add in when considering getting a mortgage vs paying outright in addition to the tax equation.
    – Anoplexian
    Commented Dec 5 at 16:03
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    Gotta love arbitrage. and the S&P 500s 10% average return.
    – Questor
    Commented Dec 5 at 18:10
  • I realize this is trying to be a simple example but it's worth mentioning that people aren't ever in a tax bracket. It's a very common misconception. The irs has a great example explaining how it works but the idea is that if person A makes 20 thousand dollars a year and person B makes 20 million dollars a year, both of them have the first $11,000 taxed at the exact same rate. irs.gov/filing/federal-income-tax-rates-and-brackets
    – MiniRagnarok
    Commented Dec 5 at 21:32
  • @MiniRagnarok The relevant number for "tax bracket" here is not the tax rate for first $11000, but the rate you pay for the last $15000: By lowering the taxable income by $15000 (and assuming this doesn't cross any bracket limit), you don't pay the 22% taxes on that amount.
    – Paŭlo Ebermann
    Commented Dec 5 at 23:11
  • @PaŭloEbermann I agree however none of that is mentioned here and they used the language that is a big part of the misconception. Income is in a tax bracket, not people.
    – MiniRagnarok
    Commented Dec 6 at 13:29

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