Tax Deductible Mortgage Interest & Closing Costs
Personal Income Tax Prep

2010 Tax Deduction Overview of Mortgages
Tax Overview: 2010-2011 Update - (April 2011)

Tax Brackets

Good news regarding the indexed tax brackets, they all received a bump in 2010 over their 2009 levels. All brackets: 10%, 15%, 25%, 28%, 33% and 35% begin at income levels that are more than 4% higher in 2010 than they were in 2009.

In 2011 both the tax bracket ranges as well as the standard deduction have risen again due in large part to the low rate of inflation.

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Note that 2/3rds of all taxpayers choose to take the standard deduction as opposed to itemizing their deductions.

The standard deduction for single filers has also increased from 2009 levels for both single filers and heads of households. For single filers the deduction is $5,700 and for heads of households the deduction is $8,400. However there is no change for married taxpayers filing jointly, the deduction remains at $11,400, the same level as in 2009. Personal exemptions remain unchanged from 2009 levels as well and remain at $3,650. The itemized deductions that phased out in 2009 at $166,800 have been repealed from 2010 through 2012.

In 2011 the standard deduction for single filers, as well as married taxpayers filing separately, will increase to $5,800. The deduction for heads of households is also higher at $8,500. For married taxpayers filing jointly, the deduction is $11,600.


Payroll Tax Credit

In 2009 and 2010, workers were given a 6.20% credit of their earned income. This credit is capped at $400 for single filers and $800 for those filing jointly. With single filers, the credit begins to phase out with AGIs (adjusted gross incomes) of $75,000 and phases out completely at $95,000. For joint filers, the phase out begins at $150,000 and ends at $190,000.

In 2011, the employee’s portion of FICA has been reduced by 2% to 4.2%, however the employers contribution amount remains unchanged.

Dividend Tax Rate – extended thru 2012

The 15% maximum rate on qualified dividends remains in place and for those taxpayers in the lower brackets of 10% and 15%, the rate on dividends remains at zero.

Capital Gains Rate - extended thru 2012

For assets held longer than one year, the capital gains rate remains at 15% for most taxpayers and for those in the bottom 10% and 15% income tax brackets, the capital gains rate is zero. For assets held under a year, any gain is taxed at the taxpayer’s ordinary income bracket.

Unemployment Benefits, Partial Exclusion

The initial $2,400 in unemployment benefits received is no longer tax-free in 2010.

Alternative Minimum Tax (AMT) Exemption

Exemption levels were increased to $47,450 for both single taxpayers and heads of households. For married couples filing jointly, the exemption level rose to $72,450 and for married couples filing separately it is $36,225.

First Time Buyer and Existing Homeowner Tax Credit

First time buyers (defined as those who have not owned a home in the past three years) who purchased a primary residence by April 30, 2010 and closed by September 30, 2010, are eligible to receive a tax credit of 10% of the purchase price up to a maximum of $8,000.

Existing homeowners are also eligible to receive a tax credit of 10% of the purchase price up to a maximum of $6,500 if they entered into a contract to purchase a primary residence by April 30, 2010 and closed escrow by September 30, 2010. To qualify, existing homeowners do not need to sell their current residence but they must have lived in the same primary residence for 5 consecutive years during the past 8 years. The newly acquired residence but also be purchased as a primary residence.

Homes with purchase prices exceeding $800,000 are not eligible for the credits.

Income limitations for both first time and existing buyers have also been expanded, up to $125,000 for single taxpayers and heads of households and up to $225,000 for married joint filers.

Mortgage Insurance Premiums

For mortgages initiated after 2006, the itemized deduction for premiums paid phases out after 2010.

Foreclosure Tax Relief

The amount of debt forgiveness a homeowner is permitted by their lender will again become taxable after 2012. Beginning in 2013, homeowner’s will receive a 1099 from their lender on the amount of debt forgiveness they are permitted and it will likely be taxed at as ordinary income to the taxpayer.

401(k) Plan Contribution Limits

The maximum employee contribution limit for 2010 is $16,500. Those workers who are 50 years of age and older may contribute an additional $5,000 in 2010 and $6,000 in 2011 (designed as a catch up provision) for a maximum contribution of $21,500 and $22,500 respectively.

Roth IRA Conversions

Beginning in 2010 all taxpayers, without income limitations, may convert their traditional IRA to a Roth IRA (note that with a traditional IRA contributions may be tax deductible or can grow on a tax deferred basis, conversely with a Roth IRA, the contributions are not tax deductible but can grow on a tax free basis). For those taxpayers choosing to convert in 2010, the tax liability resulting from the conversion may be spread out over a two year period with half of the taxes due in 2011 and the remaining taxes due in 2012. Note that conversions are fully taxable at the taxpayer’s ordinary income rate.

Note: The information contained on this website is provided as a supplemental educational resource. Readers having legal or tax questions are urged to obtain advice from their professional legal or tax advisors. While the aforementioned information has been collected from a variety of sources deemed reliable, it is not guaranteed and should be independently verified.

Nancy Osborne, Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.

"I am addicted to Bloomberg TV" says Nancy.

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