Can anyone explain how the tax deduction works for owning real estate. First time home buyer who's closing a new build in January

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Honestly, it's not that good a deal since the standard deduction was raised. Mortgage interest is deductible up to $750k loan (married filing jointly) but the standard deduction for 2 is $24,800. The property and local tax deduction is capped at $10k. So if you have a $750,000 loan at 2.5% that + your property taxes will get you to $28750 max. If you loan is less or you are in a low tax state, you won't exceed the standard deduction (especially if you have kids).

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Yeah, we bought in the first year of the TCJA. Standard deduction was greater than the interest by a longshot. You can't file separately either, as both partners need to take the same type of deduction. It only works to itemize if you have other large chunks of deductions to itemize or a very large loan.

It’s an itemized deduction. As others have mentioned, now that the standard deduction is $24k for MFJ (and SALT cap) it is much harder to have itemized deductions in excess of standard deduction so many people now get no tax benefit from mortgage interest and property taxes. However tax benefit of gain exclusion in year of sale is still a good one.

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Assuming this is your primary residence?

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Yes primary residence

Interest on *

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There are other tax benefits besides mortgage interest.
For example you get to take depreciation against the improvements or any capital expenses (there is partial recapture on the sale but if you never sell, never have to pay it).
If you rent the property and it cash flows, you get to take a lot of expenses out to reduce the ‘real estate taxable income’ far below the rent received.

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there's no deductible depreciation on your personal residence - only on income property (i.e., a rental property. If you make capital improvements, you can deduct those from your capital gains when you sell. There is also an advantage when you sell in that up to $500k (married filing jointly) of capital gains are excluded from capital gains tax if you have lived in the house for at least 2 of the past 5 years. This is a potential play were people will rent a house, then live in it for two years and then sell, thus avoiding capital gains taxes. On a rental property, you can only deduct up to $25k more than your rent received and only if your taxable income is less than $150k. There's also a phase out on that if your income is between 100k and 150k.

MD1 are you positive that the 750k acquisition debt is for MFJ? What is it for Single?

Can deduct property taxes. Limited to 10k along with state income tax.

Some additional context. House is 600k, with a 540k loan. I'm single for tax purposes.

Does this change anything? Sounds like the standard deduction is 12.5k so im likely to not exceed that amount unless I have a ~3% loan

If it's going to be close, it's not hard to try both. Using any of the online services...

Do the standard deduction on TurboTax, and the itemized deduction on Credit Karma...both should be free to at least see the calculations. Only file whichever has the better number.

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