Why does my refund decrease after entering mortgage interest deduction?

So I've been working on my taxes this weekend and something really weird happened. I was going through TurboTax and my refund was looking pretty good - around $2,100. Then I got to the part where I entered my mortgage interest and property taxes for my townhouse. I paid about $7,800 in mortgage interest last year and around $275 in property taxes. But here's the crazy part - after I entered those numbers, my refund suddenly dropped to like $1,150! That's almost a $1,000 decrease just for owning a home and paying my mortgage! I thought mortgage interest was supposed to HELP with taxes, not hurt them. Can someone explain why adding these deductions would actually REDUCE my refund? I'm so confused and frustrated right now.

0 coins

18 comments

Chloe Harris

•8M

This is probably happening because you're hitting the "standard deduction vs. itemized deduction" threshold. Here's what's likely going on: When you file taxes, you get to choose between taking the standard deduction ($14,600 for single filers, $29,200 for married filing jointly in 2025) OR itemizing all your separate deductions (like mortgage interest, property taxes, charitable donations, etc.). The tax software automatically gives you whichever is higher. Before you entered the mortgage info, the software was probably assuming you'd take the standard deduction. After you entered your mortgage interest and property taxes (about $8,075 total), you're still below the standard deduction amount. So the system is still using the standard deduction, but now it's accounting for other tax implications of homeownership that might affect your refund. Do you have any other significant deductions like large charitable donations, medical expenses over 7.5% of your income, or state/local taxes that could push you over the standard deduction threshold?

0 coins

Chloe Harris

•8M

When you enter mortgage information, the tax software starts accounting for a few other housing-related factors that can affect your overall tax situation. Even if you're still taking the standard deduction, adding a home can trigger calculations for things like: The mortgage interest credit (different from the deduction) which has income phaseouts that might be affecting you. Also, depending on your income level, owning a home might impact other credits or deductions you were previously qualifying for - like certain education credits or income-based benefits that phase out at different thresholds. My suggestion is to look at the actual tax calculation page in your software - there should be a way to compare your return before and after entering the mortgage information to see exactly which line items changed. That will tell you precisely what's causing the reduction.

0 coins

Diego Mendoza

•8M

I ran into this exact same issue last year! I was freaking out watching my refund drop after entering my mortgage info. Turns out my taxes were way more complicated than I realized once I became a homeowner. I ended up using https://taxr.ai to analyze my tax documents and it found several issues with how my mortgage lender reported my interest. The software easily caught that my lender had categorized some of my payments incorrectly which was causing my refund to calculate lower than it should have been. The system identified exactly where the problems were in my tax forms and explained how to fix them. After uploading my mortgage statements and tax docs, I got a detailed breakdown showing how my homeowner deductions should actually work with my tax situation. Ended up getting almost $800 more back!

0 coins

Diego Mendoza

•8M

The software doesn't fix the errors with your lender - it identifies exactly where the problems are so you can get them corrected. In my case, I called my mortgage company with the specific issues the analysis found, and they sent a corrected Form 1098. It made the conversation with them much easier because I could point to exactly what was wrong. It's completely different from TurboTax or other filing software. Those programs just process what you enter, but they don't analyze whether your documents are correct or optimal. This analyzes your actual tax documents and transcripts to find errors, misclassifications, or missed opportunities. It's more like having a tax expert review all your paperwork and flag problems before you file.

0 coins

Sean Flanagan

•8M

Ok, I tried that taxr.ai site after posting my skeptical comment, and I have to admit it was pretty eye-opening. I uploaded my mortgage statements and last year's tax return, and it immediately spotted that my property tax deductions were being applied incorrectly. The analysis showed that some of my mortgage payments included amounts for things beyond just interest that could be classified differently for better tax treatment. It also explained exactly why my refund was dropping - turned out in my case it was related to an AMT (Alternative Minimum Tax) calculation being triggered. I honestly would never have figured this out on my own or even with my regular tax software. Going to fix these issues before filing this year!

0 coins

Zara Shah

•8M

Something similar happened to me last year and I spent WEEKS trying to get through to the IRS to understand what was going on. Called like 15 times and could never get through to an actual person who could explain it. Super frustrating. Finally found https://claimyr.com which got me connected to an IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They basically navigate the IRS phone system for you and call you back when they have an agent on the line. The agent I spoke with was actually super helpful and explained that in my case, the mortgage interest was affecting some income-based credits I was eligible for. She walked me through exactly what was happening with my specific tax situation and how to properly report everything.

0 coins

Zara Shah

•8M

It doesn't jump the queue - they use automated technology to handle the waiting and menu navigation for you. Basically, they call the IRS and go through all the prompts and hold times on your behalf, then when they finally get a human agent, they connect the call to you. So you're still "waiting in line" but their system is doing the waiting instead of you sitting on hold for hours. The service essentially monitors the IRS phone lines, calls at optimal times, and handles all the frustrating menu selections and waiting. When they finally reach a human agent, your phone rings and you're connected. I was skeptical too but it actually worked - saved me literally hours of hold time and frustration.

0 coins

Luca Ferrari

•8M

Ok I need to apologize for my skeptical comment above. After months of IRS frustration I was desperate enough to try that Claimyr service and I'm honestly shocked. Got connected to an IRS representative in about 20 minutes yesterday after trying unsuccessfully for weeks on my own. The agent explained exactly what was happening with my mortgage interest deduction situation - turns out in my case it was related to how the interest was affecting my student loan interest deduction phaseout. Would NEVER have figured that out on my own. She also helped resolve my pending audit issue while I had her on the phone. Completely worth it just for the time saved not listening to that awful hold music!

0 coins

Nia Wilson

•8M

An MCC is a certificate issued by certain state or local governments for first-time homebuyers or buyers in specific areas. You would definitely know if you had one - it's something you apply for through your state housing agency before or when closing on your home, and they provide you with an actual certificate. If you didn't specifically apply for one when buying your home, you probably don't have it. They're typically offered through first-time homebuyer programs or for properties in designated "target areas" that the government wants to encourage homeownership in. The credit lets you claim a percentage (typically 10-50%) of your mortgage interest as a direct credit rather than a deduction.

0 coins