Mortgage interest is deductible only if you itemize deductions on your tax return, and only on loans up to $750,000 in principal

You can deduct the interest you pay on a mortgage, but not automatically. The IRS allows it only if you itemize deductions instead of taking the standard deduction. Most people take the standard deduction because it is larger, which means most homeowners do not actually deduct mortgage interest. You also have to meet other conditions: the loan must be secured by your home, the principal cannot exceed $750,000 (or $1 million if you took out the loan before December 16, 2017), and you must have a valid mortgage or home equity loan agreement.

The deduction applies to interest only, not to principal payments, property taxes, homeowners insurance, or fees. If you pay $12,000 in mortgage interest in a year and $3,000 in principal, you can only deduct the $12,000. You report this on Schedule A (Form 1040) when you file your federal return.

Key Takeaways

  • Mortgage interest is deductible only if you itemize deductions, which requires your total itemized deductions to exceed the standard deduction for your filing status.
  • The loan principal limit is $750,000 for mortgages taken out after December 15, 2017, and $1 million for loans taken out before that date.
  • Interest on home equity loans and lines of credit is deductible only if the borrowed money was used to buy, build, or substantially improve your home.
  • You need Form 1098 from your lender showing the interest paid, though you can still deduct interest if you do not receive the form.
  • Refinancing your mortgage does not change the deduction rules, but it may change how much interest you pay each year.

Itemizing versus the standard deduction

The standard deduction is a flat amount the IRS lets you subtract from your income without listing individual expenses. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. If your mortgage interest plus other deductible expenses (property taxes, state and local taxes, charitable donations, medical expenses) add up to more than that, itemizing saves you money. If not, the standard deduction is better.

Most homeowners with mortgages under $400,000 find that the standard deduction is larger, especially after the $10,000 cap on state and local tax deductions (SALT) took effect in 2018. You can only deduct mortgage interest if you choose to itemize, which means you must also list all your other deductible expenses on Schedule A.

Loan principal limits and what they mean

The IRS sets a cap on the mortgage principal amount for which you can deduct interest. If your loan is for $750,000 or less and you took it out after December 15, 2017, you can deduct all the interest. If you took out the loan before that date, the limit is $1 million. The limit applies to the total principal across all mortgages on your home—if you have a first mortgage and a home equity loan, add them together.

The limit is on principal, not on the home's value. You could own a $2 million house with a $500,000 mortgage and deduct all the interest. You could also own a $500,000 house with a $750,000 mortgage (if you refinanced or took out a large home equity loan) and deduct interest only on $750,000 of it. If your total mortgage debt exceeds the limit, you deduct interest only on the portion within the limit.

Home equity loans and lines of credit

Interest on a home equity loan or home equity line of credit (HELOC) is deductible under the same principal limit as your mortgage. However, there is an additional rule: the money must have been used to buy, build, or substantially improve your home. If you borrowed $50,000 against your home's equity to pay off credit card debt or buy a car, that interest is not deductible.

If you used part of a HELOC for home improvements and part for other purposes, only the interest on the portion used for the home counts. You need to track how you used the money. Keep documentation of the improvement project—receipts, contractor invoices, or permits—to show the IRS if you are audited.

How to report mortgage interest on your return

Your lender sends you Form 1098 (Mortgage Interest Statement) by January 31 each year, showing the interest you paid in the prior year. You report this amount on Schedule A, line 8. If you are married filing jointly and both you and your spouse have mortgage debt, each of you reports your own interest on your own Schedule A if you file separately, or you combine the amounts if you file jointly.

If you do not receive Form 1098, you can still deduct the interest—you just have to calculate it yourself using your loan statements or payment records. The IRS does not require the form to allow the deduction, though having it makes the process simpler. If your lender sends you a 1098 with an incorrect amount, contact them to request a corrected form.

Points and prepaid interest

When you take out a mortgage, you may pay points (also called loan origination fees), which are prepaid interest. Points are usually expressed as a percentage of the loan amount—one point equals 1 percent. You can deduct points in the year you pay them, but only if certain conditions are met: the loan must be secured by your primary residence, the points must be a standard charge in your area, and the amount must be reasonable compared to the loan size.

If you refinance a mortgage, points paid on the new loan must be deducted over the life of the new loan, not all at once. If you refinance again or pay off the loan early, you can deduct any remaining points in the year of payoff. Keep your closing disclosure or loan estimate showing the points you paid—this is your proof if the IRS questions the deduction.

What you cannot deduct

The IRS does not allow deductions for property taxes, homeowners insurance, mortgage insurance (PMI), loan origination fees (other than points), appraisal fees, title insurance, or homeowners association dues. You also cannot deduct principal payments, even though part of each monthly payment goes toward principal. Only the interest portion is deductible.

If you pay property taxes, you can deduct them separately on Schedule A, but they count toward the $10,000 SALT cap. This cap limits the total of state and local income taxes, sales taxes, and property taxes you can deduct in a single year.

Frequently Asked Questions

Do I have to itemize to deduct mortgage interest?

Yes. You can only deduct mortgage interest if you itemize deductions on Schedule A. If the standard deduction is larger than your itemized deductions, you should take the standard deduction instead, and you will not deduct mortgage interest. For most homeowners, the standard deduction is larger.

Can I deduct interest on a second home or investment property?

Interest on a loan for a second home is deductible under the same rules as your primary residence, as long as the total principal on all your mortgages does not exceed the limit. Interest on a rental property or investment property follows different rules and is reported on Schedule E, not Schedule A.

What if I paid off my mortgage early?

You deduct only the interest you actually paid in the tax year. If you paid off your mortgage in June, you deduct only the interest paid through June. You cannot deduct interest you would have paid if you had kept the loan.

Does refinancing change my ability to deduct interest?

Refinancing does not change the deduction rules, but it may change how much interest you pay each year. If you refinance to a lower rate, your interest payments drop. If you refinance to a longer term, your total interest over the life of the loan increases, but your annual interest may be lower or higher depending on the rate and term.

What if my lender did not send me Form 1098?

You can still deduct the interest. Calculate it from your loan statements or payment records and report it on Schedule A. Contact your lender to request a corrected 1098 if they sent one with an error, but the absence of the form does not prevent you from deducting what you actually paid.