The Short Answer
One pays Zakat yearly on all wealth (mal, pl. amwal) one possesses that meets the conditions of Zakat when an Islamic lunar year (hawl) passes on it or one has it at its time of collection, regardless of debt (see Is Zakat Due on All Wealth?).
The Muslim pays Zakat as an obligatory alms out of his or her eligible existing, growing, or growth-capable wealth itself. One’s debts are a separate matter of personal obligation (see Can Zakat Be Used to Pay Debt?).
ZAKAT NOT LIMITED BY DEBT
The Texts of Revelation (wahy), meaning the Quran and the Sunnah of the Prophet, on him be peace, bind Zakat to wealth and do not directly limit it by one’s indebtedness to others.
THE QURAN: Allah commanded his Prophet, on him be peace, and through him us: Take from their wealth a ‘charitable offering’ to cleanse them and purify them thereby (Surat At-Tawbah, 9:103). ‘Charitable Offering’ here translates the Arabic word ‘sadaqah,’ which in most of its uses in the Quran means the obligatory alms of Zakat (see What is the Difference Between Zakat and Sadaqah?).
THE SUNNAH: In dispatching his Zakat collector (musaddiq) to Yemen, the celebrated Companion Mu’adh ibn Jabal, God be pleased with him, the Prophet, on him be peace, instructed him: “Tell them that Allah has obligated Zakat from their wealth” (Bukhari).
As is the case with most of the Quran’s principles and commandments, the Prophet, on him be peace, established Zakat’s specifics as God imparted them to him. This includes:
- The wealth-types that qualify for Zakat
- The amounts of each wealth-type exempt from Zakat
- The rate at which Zakat payers must pay out of each wealth-type
Based on this, when any kind of one’s “Zakatable” wealth reaches its particular threshold of Zakat payment (nisab), one must pay Zakat from it at its set rate on its Zakat Due Date (zdd) (see Nisab and Zakat Calculation in a Nutshell). The most common of these rates for qualifying Zakat wealth is 2.5%.
Why does a mortgage not count as debt in Zakat calculation?
Paying Zakat “out of” the eligible kind of wealth on which Zakat is assessed is a crucial concept in understanding why scholars bar deduction of mortgage debt from Zakat calculation.
Before explaining this, take note that Islam does not ask homeowners, who live in their homes as a primary residence, to pay Zakat out of them, or even out of their value.
There is no Zakat on essential needs – one’s home, personal clothing (see Is there Zakat on Jewelry?), tools of trade (including a scholar’s books), means of transport, and so on. Neither is Zakat taken from one’s expenses, debts, or loans.
So even the part of a mortgage one pays off – that portion of the home accruing as an asset to its owner – remains Zakat-exempt because of its basic personal use. This exemption holds even after one completely pays off its mortgage and the home of primary residence becomes exclusively his or hers, even if its asset value grows and no matter how much.
How is mortgage debt categorized for Zakat Purposes?
Scholars generally classify debts in two primary categories, in order of priority:
- Debts to God
- Debts to people
Some consider outstanding Zakat a debt to people, as the Zakat payer owes it to the poor and other divinely designated Zakat recipients.
Most consider home mortgage for one’s primary residence under the category of an obligation against future income or wealth. That is, strictly speaking, a home mortgage, though a debt, applies in actuality and agreement to the income one will earn in the future.
In the normal course of its due payment, and contractually, a mortgage does not reduce one’s wealth holdings, nor bear upon one’s wealth as a matter of immediate, demandable collection, or present due debit. Due mortgages, and their debt, do not come out of a wealth or property one currently possesses.
Can any part of a mortgage be deducted for Zakat?
Yes. The majority and strongest opinion is that one may count the specific (usually monthly) mortgage payment currently owed at the ZDD as a living expense and deduct that specific payment amount from one’s personal wealth.
One then calculates his or her personal wealth, minus expenses, and, if it reaches the minimum threshold (nisab), pays the 2.5% Zakat rate for this category on time at its due date. (Other types of wealth – business, agricultural produce, livestock, troves – are separately calculated and paid accordingly.)
Deduct the due mortgage payment (usually monthly) with one’s other current essential expenses (food, clothing, utilities, transportation, insurance, medical payments and the like), and then calculate and pay one’s Zakat.
(Some related to the Hanafi school have said one may only go as far as categorizing the coming Zakat year’s due mortgage payment installments as “demanded debt” – and, therefore, immediately due – and deduct it from one’s current Zakat calculation. But this is a weak interpretation and cautioned against for a variety of reasons. Abu Hanifah, himself, holds that long-term debt does not preempt Zakat payment.)
Can you give an example of mortgage payment deduction from Zakat?
Zaid’s mortgage payment of $2,000 (on a $100,000 outstanding mortgage) is due in the month of his zdd for the category of personal wealth.
After all other expenses, he has $10,000 (in cash on hand, bank accounts, gold and other precious metals and gems, stocks, shares, bonds, retirement accounts and loans (from this Zakat year that he expects to be paid back), tax and other refunds, and salary and payments due him).
He deducts the $2,000 due mortgage payment from his $10,000 in total Zakatable personal wealth, leaving him $8,000. Zaid checks the current price of gold per gram, which is $56. He multiplies $56 by 85 grams to find the current value of nisab for personal wealth at $4,760. He is over the nisab threshold for Zakat on personal wealth. He multiplies his $8,000 total personal wealth for the lunar year by its Zakat rate of 2.5% (.025), which comes to $200. Zaid’s Zakat is $200 after his mortgage payment deduction. He pays his Zakat on time at its zdd. Allah blesses and purifies his wealth, insha’Allah.
What is the formula for calculating Zakat?
Here is the overall formula for Zakat calculation:
sum (personal wealth + business wealth) x .025 – (necessary due debt) – (advanced zakat payment) = due zakat
For a quick, complete explanation see Nisab and Zakat Calculation in a Nutshell.
For an in-depth explanation see How is Zakat Calculated on Wealth?