Mortgage Interest Tax Deduction is better than I realized?

[Nick Eckemoff]

Sorry if this has been asked before...maybe I'm not using the correct keywords.

I am confused about the mortgage interest tax deduction. I understand that it allows the interest on a mortgage loan to be deducted, but how much considering a mortgage is amortized? The first 5 years or so mortgage payments go mostly to the interest cost. This means that, for at least the first year, 100% of your mortgage payment is interest-only and you can deduct (nearly) the full amount?

For example, on a $120k single family home on a 30 year 4% mortgage, the payment is about $575 per month. This is technically mostly paying the interest for the first years. The sum of the payments is $6900 per year so this would be filed as a deduction? 

I understand that if you file jointly when married the standard deduction is $12,600 in 2017 and might even be doubled pending policy changes. Even still, if you itemize deductions instead of taking the standard deduction, you can exceed this mount pretty quickly considering all the other deductible expenses for a rental property investment. The mortgage deduction alone with two $120k properties would exceed the standard deduction. After a number of years, you can even refinance to reset the amortization and reduce the monthly payment to boost cash flow and continue to maximize on this deduction.

If someone buys a 300k+ house for personal use, the mortgage interest deduction will exceed the standard deduction for the first years.

Am I understanding the mortgage interest deduction correctly?

[Lance Lvovsky]

On a rental property, the mortgage interest is generally fully deductible (unless you do a cash out and use the proceeds for personal use, then interest tracing rules apply). The mortgage interest deductibility for a rental is not limited.

On a primary residence, mortgage interest is limited to 1.1 million (1 million of mortgage indebtedness and 100k of home equity indebtedness). Therefore on your Schedule A where you itemize deductions, you are limited to interest up to the first 1.1 million. Up to 2 homes qualify as personal mortgage interest.