paying down a mortgage and taxes

[Louisll29]

Does paying a lump sum of money towards your mortgage help or hurt your taxes or not change it with a 30 year fixed loan?

For example, I bought a house in 2021.... I made an additional lump sum payment of $10,000 in 2022 and $10,000 in 2023. I know I can deduct the interest and since its a 30 year fixed I am paying a lot of interest in the first few years.

By paying down my mortgage I know means I pay off the loan sooner but don't really pay less interest this year...correct? So would it affect my 2022 and 2023 taxes by paying this lump sum?

Thanks 

[xmasbaby0]

The lump sum you pay toward the principal on your mortgage will not affect your tax refund or tax due. in the near future.   Only the interest you pay is deductible.    And.....for many homeowners, even the interest paid has no effect, because it is so difficult for many people to have enough itemized deductions to exceed their standard deduction.

HOMEOWNERSHIP DEDUCTIONS

It is very hard for a lot of people to use itemized deductions now that the standard deduction is so much higher.  Your home ownership may not have any effect on your tax due or refund, especially if you purchased the house late in the year.  

Standard Deduction
Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund.  The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting  tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach.  The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you.  Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes. 

2022 STANDARD DEDUCTION AMOUNTS

SINGLE $12,950  (65 or older + $1750)

MARRIED FILING SEPARATELY $12,950  (65 or older + $1750)

MARRIED FILING JOINTLY $25,900  (65 or older + $1400 per spouse)

HEAD OF HOUSEHOLD  $19,400  (65 or older +$1750)

Legally Blind + $1750

[JBedford]

Hi, @Louisll29 ! As a general rule, paying down your mortgage may cause your tax liability to go up, since you will be paying less deductible mortgage interest (which of course, is not a bad thing!) However, if you are not itemizing your deductions but are instead taking the Standard Deduction, then it will have no effect. But as you said, most of your mortgage payments go mostly toward interest in the early years, so any difference may be subtle. Hope this helps! 

[rschule1]

An important consideration is to determine if in 2022, did you itemize or claim the standard deduction, which could be determined from Schedule A of 1040. If you claimed the standard deduction, then prepaying mortgage will not have any effect. If you itemized then paying down your mortgage could lower your itemized deduction and increase your taxes by your federal and state income tax rates calculated against loss of interest deduction.