Is Mortgage Interest a 100% Deduction?

Forum|Forum|3 years ago
March 13, 2023
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My assumption is that mortgage interest is 100% deductible. I am utilizing the windows version of TurboTax and am itemizing my taxes. I had keyed in only my W2 information and my Fed taxes owed at the time indicated $7,385. My primary home mortage interest is $9,938, which is more than the Fed taxes owed. When I keyed in that deduction it dropped my Fed Taxes owed to $5,108. That is only a 23% deduction of the $9,938 not 100%. I assumed that would have wiped out the $7,385 original taxes owed. Can someone point me where I am wrong or is the software wrong?

HelenC12

The TurboTax software is not wrong. Your mortgage interest deduction is not a dollar for dollar deduction in your taxes owed. That's not how deductions work.

If your mortgage interest is $9,93, your taxable income is reduced by $$9,938. You'll never see a $9,938 deduction translate to a $9,937 decrease in your taxes owed.

Click here to see the IRS tax tables. Find your income, before and after your mortgage deduction, to see the change in your tax liability.

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jetax89Author

Ok, I understand now. I do have an additional question. Every time I apply a deduction whether it be a mortgage interest deduction or charitable contribution TurboTax only deducts about 23% of the total deduction from my taxes. Is that correct? I've tried numerous different scenarios and it comes out to about 23% of the total deduction for whatever deduction that the taxes are reduced. I've even tried it with a much smaller AGI example and it works the same way. I assumed it was based on where you fell in the tax tables but it doesn't appear that way.

Cynthiad66

All of the deductions basically work the same when adding them to the tax return. Income does also. Tax deductions are not dollar for dollar. HelenC12 explained it in her answer above. Only tax credits apply dollar for dollar. TurboTax computations are most likely accurate.

Deductions reduce your taxable income by the percentage of your highest tax bracket. For example, if you are in the 24 percent tax bracket, a $1,000 deduction will save you $240 (1,000 x 0.24 = 240) on your tax bill.

You are correct that it is based on the Tax rates that apply to you however not that simple and straightforward. See this link for how deductions affect your tax return.

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