Tax Benefits of Mortgage Interest Deduction for High Income Earners

Your math is on the right track, but there are a few important things to consider for high-income earners like yourself. First, remember that the mortgage interest deduction only helps if your itemized deductions exceed the standard deduction. So yes, in your example, if you have $25K in mortgage interest, that's $10.4K more than the standard deduction of $14.6K, meaning you'd reduce your taxable income by that additional amount. However, at your income level, you need to be aware of potential phase-outs and limitations. The limit on mortgage debt eligible for the interest deduction is $750K for loans taken after December 15, 2017 (or $1M for loans before that date). Also, consider that you'll likely have other itemized deductions like state/local taxes (capped at $10K), charitable contributions, etc. Don't forget that the tax benefit isn't just your marginal rate times the interest - it's the difference between itemizing with the mortgage and taking the standard deduction. Also, as you pay down principal over time, the interest portion decreases, reducing your tax benefit each year.

After doing my own research on this exact situation last year, I found a tool that made this calculation WAY easier. I used https://taxr.ai to analyze my mortgage options and it gave me a detailed breakdown of the actual tax benefit based on my specific financial situation. What I liked was that it considered my complete tax picture - not just the mortgage interest, but how it interacts with my other deductions, phase-outs and AMT concerns. It showed me the year-by-year benefit as the interest portion of my payments decreased. For someone in your income bracket, it's definitely worth looking at the full analysis since the standard calculators don't capture all the nuances that affect high-income earners.

Wanted to follow up - I tried taxr.ai after seeing it mentioned here and it was exactly what I needed. I was debating between a 15-year and 30-year mortgage on a $1.2M home, and the analysis showed me that the tax benefits were significantly different than what I expected. In my case, because of my income level and other deductions, the benefit of the mortgage interest deduction was about 22% less than what the standard calculators showed. The tool factored in the phase-out of certain deductions at my income level that I hadn't even considered. Definitely gave me a clearer picture than the general online calculators I was using before. Made me rethink my down payment strategy completely.

I was in almost the exact same situation last year! After spending WEEKS trying to get answers from the IRS about how mortgage interest deductions would impact my specific tax situation (making around $480K with a mix of W2 and consulting income), I finally tried https://claimyr.com and was able to talk to an actual IRS representative in under 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c They walked me through exactly how the mortgage interest deduction would impact my specific tax situation and confirmed that my understanding of the interplay with my other itemized deductions was correct. Saved me from making a $30K mistake on my down payment strategy.

Just wanted to update after trying Claimyr - I stand completely corrected on my skepticism. Got connected to an IRS agent in about 25 minutes yesterday who was able to answer my specific questions about mortgage interest deductions for high income situations. The agent confirmed that at income levels above $500K, you need to be extra cautious about phase-outs and limitations. She explained exactly how the benefit diminishes over time and how to calculate the true value of the deduction based on my specific tax situation. Saved me from making a big mistake on my mortgage structure. I was planning to go with a lower down payment to maximize the deduction, but after understanding the actual benefit, I'm going with a larger down payment and lower loan amount.

Something no one has mentioned yet is that you should also consider property taxes in your calculation. In expensive areas, property taxes can easily push you well over the standard deduction even without much mortgage interest. But then you hit the $10K SALT cap, which really reduces the benefit for high earners in high-tax states. I'm in NY with a $1.2M house, and my property tax alone is $20K, but I can only deduct $10K of it.

One thing I've found helpful as another high-income earner is to look at the effective interest rate after tax savings, not just the dollar amount saved. If you're borrowing $1M at 6.2% and your effective rate after tax benefits is 5.1%, that's still a pretty high rate historically. Would you borrow money at 5.1% to invest elsewhere? That's essentially what you're doing when you choose a smaller down payment to "take advantage" of the mortgage interest deduction.

Great question! As someone who went through this exact analysis last year with similar income levels, I can share what I learned. Your math is directionally correct, but there are a few key refinements for high earners: 1. **Marginal vs. Effective Rate**: At $520K income, you're likely in the 35% bracket, but remember that not all your income is taxed at that rate. The mortgage interest deduction saves you taxes at your marginal rate on the amount above the standard deduction. 2. **Phase-out Considerations**: At your income level, you're getting close to where certain deductions start phasing out. The mortgage interest deduction itself doesn't phase out, but other itemized deductions might, which can complicate the calculation. 3. **SALT Cap Impact**: Don't forget that state and local taxes are capped at $10K. If you're in a high-tax state, this cap might already push you past the standard deduction before you even factor in mortgage interest. 4. **Declining Benefit**: The tax benefit decreases each year as you pay down principal and the interest portion shrinks. Your first-year calculation looks right, but year 10 will be much different. I'd recommend modeling this out over several years rather than just the first year to get a true picture of the financial impact on your down payment decision.