How to Calculate Tax Savings on Mortgage Interest

Instructions

Determine your standard tax deduction. For 2009, the standard tax deductions are $5,700 for someone filing as a single, and $11,400 for a married couple filing jointly.

Subtract your standard deduction from the total amount of itemized tax deductions you have, not including the mortgage interest deduction, which is also an itemized deduction. Itemized tax deductions cover a wide variety of expenses, from charitable contributions to medical and dental expenses. If the amount you end up with is a positive number, the mortgage interest tax deduction will save you an amount equal to the interest you paid on your mortgage multiplied by your income tax rate. If you end up with a negative number, go on to Step 3.

Add the total amount of interest paid on your mortgage for the year to the negative number from Step 2. If the result is still negative, you will not save any money from the tax deduction, since your itemized deductions are less than your standard deduction. If the result is positive, the positive number remaining times your income tax rate will equal the amount you will save from the mortgage interest deduction. For example, if Fred is single and has $4,700 in itemized deductions, plus $2,000 in mortgage interest payments, his total itemized deduction then exceeds his standard deduction by $1,000, which means his taxable income is reduced by $1,000. If Fred's income tax rate is 25 percent, the deduction will save him $250. If he had more itemized deductions to begin with, say $6,000, the entire $,2000 of interest payments would go toward reducing his taxable income, so he would save $500 from the deduction.