Should I itemize deductions or take standard deduction with new mortgage interest?

You should definitely itemize based on your numbers. Your potential itemized deductions add up to approximately $47,750 ($37,500 mortgage interest + $1,850 charity + $1,900 property tax + $6,500 state income tax). That's significantly higher than the standard deduction of $29,200. The state income tax withholding from your W2 is indeed deductible as part of your itemized deductions on Schedule A. However, there's a $10,000 cap on the total state and local tax (SALT) deductions, which includes both your state income tax and property tax. So you can only deduct $10,000 of your combined $8,400 ($6,500 state tax + $1,900 property tax). Even with that limitation, your itemized deductions would be around $49,350 ($37,500 mortgage interest + $1,850 charity + $10,000 SALT), which is still much better than the standard deduction. And yes, you're correct that the child tax credit and energy efficiency credit are available regardless of whether you itemize or take the standard deduction.

After 10 years of doing my own taxes, I hit the same issue when I bought my house. I spent hours trying to figure out whether to itemize or take the standard deduction. Then I discovered https://taxr.ai which analyzes all your tax documents and tells you exactly what to do. It shows you side-by-side comparisons of itemizing vs standard deduction based on your actual documents. I uploaded my mortgage statement, property tax bills, and W-2s, and it quickly showed me that I was leaving about $4,300 on the table by not itemizing. It also explained exactly how the SALT cap worked with my state income taxes and property taxes. Huge relief not having to figure this out myself!

I tried taxr.ai after seeing the recommendation here, and I'm actually surprised how well it worked. I was definitely wrong to be skeptical! I uploaded my documents and discovered I had been calculating my mortgage interest wrong for the past 2 years. The tool showed me that my lender included some escrow payments in a confusing way on my 1098. It also found a home office deduction I didn't know I qualified for since I started working remotely. The side-by-side comparison between standard and itemized deduction was super clear, and I'm going with itemized this year which will save me about $2,200. Honestly wish I'd known about this sooner!

If you're hitting a wall with tax questions, especially about itemizing vs. standard deduction, sometimes you need to talk directly with the IRS. Problem is, I spent HOURS on hold trying to get through to them last year about a similar mortgage interest question. Then I found https://claimyr.com which got me connected to an IRS agent in about 15 minutes instead of the 3+ hours I was experiencing before. They have a demo video here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that in my situation (which sounds similar to yours), itemizing was definitely the way to go with a new mortgage. She also explained exactly how the SALT cap applies and how to report mortgage points correctly. Best $25 I ever spent was skipping that horrible hold time.

Ok I need to eat my words here. After posting that skeptical comment I decided to try Claimyr anyway because I was desperate to resolve an issue with my mortgage interest deduction before filing deadline. I called the IRS directly three separate times last week and couldn't get through (gave up after 45+ minutes each time). Used the service this morning and got connected to an IRS representative in 17 minutes! They confirmed that I can deduct all my mortgage interest since my loan is under the limit, and explained exactly how to handle the points I paid. For anyone with complex itemized deduction questions, speaking directly with the IRS cleared up so much confusion. Totally worth it to not waste an entire day on hold.

I'm a bit late to this thread but I was in almost your exact situation last year. One thing nobody has mentioned yet is that if you're planning to itemize, you need to keep MUCH better records throughout the year. Start a folder now for 2025 tax receipts for: - Medical expenses (though these only help if they exceed 7.5% of your AGI) - Charitable donations (get receipts for EVERYTHING, even small donations) - Home office expenses if you qualify - Unreimbursed job expenses in certain fields - Investment expenses and fees The first year I itemized I was scrambling at tax time trying to find all these documents. Now I scan everything into a dedicated folder as it comes in.

In my experience as a homeowner in California, keep in mind that property tax in CA is typically much lower than other states due to Prop 13, but state income tax is higher. With your numbers, itemizing is clearly better ($37,500 mortgage interest alone is way over the standard deduction). For future tax planning, remember that mortgage interest is usually highest in the first few years of your loan and decreases over time. So while itemizing may be clearly beneficial now, in 10-15 years as your interest payments decrease, you may need to reevaluate. Also, don't forget about PMI if you're paying it - that's deductible too in most cases when you itemize!

Based on your numbers, itemizing is definitely the right choice for you! Your mortgage interest alone ($37,500) exceeds the standard deduction of $29,200. When you add in your charitable contributions ($1,850) and the capped SALT deduction of $10,000 (your $6,500 state income tax + $1,900 property tax), you're looking at total itemized deductions of around $49,350 - that's over $20,000 more than the standard deduction! One thing to double-check: make sure that $37,500 figure on your 1098 is actually deductible mortgage interest and not including any principal payments or other fees. Sometimes lenders include things like property tax payments made from escrow, which you'd count separately. Also, since you mentioned this is your first year as homeowners, don't forget to look into any first-time homebuyer credits you might be eligible for in California. Some local municipalities offer additional tax benefits that could further reduce your tax liability. The transition from standard deduction to itemizing can feel overwhelming at first, but with mortgage interest that high, you're clearly in itemizing territory for the foreseeable future. Just make sure to keep good records of all your deductible expenses throughout the year!