When I sit down with clients to talk about the mortgage interest deduction, the first thing I explain is that it’s only worth it if you itemize your deductions instead of taking the standard deduction.
You may deduct mortgage interest on your income taxes if you keep good records and itemize. The interest you’re paying on your home loan could reduce your tax bill.
I look at the amount of mortgage interest you paid over the year and compare it to the standard deduction for your filing status. Then I add in any other potential itemized deductions you might have—like state and local taxes, charitable contributions, or medical expenses that exceed the threshold. If your total itemized deductions come out higher than the standard deduction, then yes, claiming mortgage interest is worth it.
I always run both scenarios—standard versus itemized—so you can see the difference on paper before deciding.
How much mortgage interest can I deduct?
You can deduct interest on up to $750,000 of eligible mortgage debt (or $375,000 if married filing separately). This cap, once temporary, has now been made permanent by the One Big Beautiful Bill Act (OBBBA).
- Older Mortgages: For mortgages from Oct. 14, 1987 – Dec. 15, 2017, the deduction applies on up to $1 million of debt ($500,000 if married filing separately). For mortgages on or before Oct. 13, 1987–no cap applies.
- Transition Rule: If you were under contract before Dec. 15, 2017 and closed by April 1, 2018, your mortgage counts under the $1 million limit.
- Eligible Homes: The deduction applies to mortgages on your primary home and a second home, as long as the second home isn’t rented out full-time. Limited personal use with partial rental is still allowed.
Is mortgage interest deductible?
Yes, the deduction allows you to reduce your taxable income by money paid in mortgage interest during the year. For most people, the standard deduction is actually higher than what they’d get from itemizing.
Who Qualifies
To claim the mortgage interest deduction, you must meet these requirements:
- You must be legally responsible for the debt (your name is on the mortgage).
- The loan must be secured by your home (or second home).
- The loan proceeds must have been used to buy, build, or substantially improve the home.
- The property must qualify as a home: primary residence or second home (house, condo, mobile home, etc.).
- If you use more than one home, special rules apply for second homes, especially if they are rented out.
Limits & Restrictions
- Debt limit:
- Mortgages taken out after December 15, 2017: interest is deductible on up to $750,000 of acquisition debt ($375,000 if married filing separately).
- Mortgages taken out on or before December 15, 2017: interest may be deductible on up to $1 million of acquisition debt.
- Home equity loans / HELOCs:
Interest is deductible only if the funds are used to buy, build, or substantially improve the home securing the loan. - Second homes:
If rented out, a second home must meet specific occupancy thresholds to qualify. Otherwise, the property may be treated as a rental, with different tax rules. - Itemizing required:
The deduction is only available if you itemize deductions on Schedule A. If the standard deduction provides a bigger tax break, you won’t use the mortgage interest deduction.
How To Claim the Mortgage Interest Deduction
- Get Form 1098: Your lender will send you this if you paid $600 or more in mortgage interest during the year.
- Compare deductions: Check whether itemizing (mortgage interest + property taxes + other deductions) gives you more than the standard deduction.
- File Schedule A with Form 1040 to report itemized deductions.
- Keep documentation: Save Form 1098, closing statements, proof of how loan proceeds were used, and records of payments.
Special Scenarios
- Refinancing: Refinanced mortgages may still qualify if the new loan is used to pay off existing acquisition debt. Points paid may be deductible, either upfront or spread out over the loan term.
- Co-owners & spouses: Each person can deduct the interest they actually paid. Married filing separately is subject to its own limits.
- Homes used part-time: If a home is both rented and used personally, deductions may need to be split between personal and rental use.
Key Tax Law Changes
- The Tax Cuts and Jobs Act (TCJA) lowered the mortgage debt limit for new loans from $1 million to $750,000.
- Interest on home equity loans is no longer deductible unless the money is used to buy, build, or improve the property securing the loan.
Example
Suppose you purchased your home in 2023 with a $700,000 mortgage. You pay $25,000 in interest in the first year. Because the loan is under the $750,000 cap, you may deduct the full $25,000—if you itemize.
If you also took out a $50,000 home equity loan to build an addition, that interest may also be deductible, provided the total debt is within limits.
Mortgage Interest Deduction – FAQs
What Is the home mortgage interest deduction?
The mortgage interest deduction (MID) allows homeowners to reduce their taxable income by the amount of interest paid on qualifying home loans. It applies when you itemize deductions instead of taking the standard deduction.
Can I deduct mortgage interest if I take the standard deduction?
No. The mortgage interest deduction is only available if you itemize deductions on Schedule A.
Is mortgage insurance (PMI) deductible?
Private Mortgage Insurance (PMI) deductions expired at the end of 2021 and are no longer deductible for most taxpayers.
Can I deduct mortgage interest on a rental property?
Not as an itemized deduction. Instead, mortgage interest on a rental property is deducted as a rental expense on Schedule E.
Do I need to own the home outright to claim the deduction?
No. You only need to be legally liable for the mortgage and meet the qualifying rules. Even partial owners can deduct their share of interest paid.
Can I deduct points paid on my mortgage?
Yes. Points paid to purchase or improve your main home are generally deductible in the year paid, while points on a refinance are usually deducted over the life of the loan.
The bottom line
The mortgage interest tax deduction benefits some homeowners, but it might not make sense to take advantage of it if you paid less in mortgage interest than the standard deduction.
The new OBBBA tax laws for homeowners can be complex–we’re here to help. ExpressTaxPro will guide you through the filing process. Schedule an appointment or contact us today!
⚡Have questions about how the One Big Beautiful Bill tax changes affect your tax refund? Leave a comment below!
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