Mortgage interest is tax deductible, but only if you itemize deductions and meet specific conditions

You can deduct the interest portion of your mortgage payments on your federal tax return, but not the principal. The catch: you must itemize deductions on Schedule A instead of taking the standard deduction, and your total mortgage debt must fall within IRS limits. Most homeowners do not itemize anymore because the standard deduction is now higher than the value of itemized deductions for them, which means they get no tax benefit from mortgage interest even though they pay it.

The IRS allows you to deduct interest on up to $750,000 of mortgage debt if you are married filing jointly, or $375,000 if you are single or married filing separately. This limit applies to mortgages taken out after December 15, 2017. If your mortgage predates that, the limit is $1,000,000 (or $500,000 if single). You cannot deduct interest on a home equity line of credit or second mortgage unless you used the borrowed money to buy, build, or substantially improve your home.

Key Takeaways

  • Mortgage interest is only deductible if you itemize deductions on Schedule A, which most homeowners no longer do because the standard deduction is larger.
  • The IRS caps deductible mortgage debt at $750,000 for married couples filing jointly ($375,000 for single filers) on mortgages taken out after December 15, 2017.
  • You can only deduct interest, not principal, and only on loans used to purchase, build, or improve your primary residence or one other home.
  • Your mortgage lender sends Form 1098 in January showing how much interest you paid that year, which you use to calculate your deduction.

How to know if itemizing makes sense for you

The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly. If your mortgage interest, property taxes, charitable donations, and other deductible expenses add up to more than these amounts, itemizing saves you money. If they do not, the standard deduction is better, and you get no tax benefit from your mortgage interest.

Many homeowners in lower-cost areas or with smaller mortgages find that their total itemized deductions fall short of the standard deduction. A mortgage of $300,000 at 6.5% interest costs roughly $19,500 in interest in the first year, but if you live in a state with low property taxes and do not donate much to charity, your total itemized deductions might still be under $29,200. In that case, you would take the standard deduction and receive no mortgage interest deduction.

Use a tax calculator or speak with a tax preparer to compare your itemized deductions against the standard deduction for your filing status. This comparison changes year to year as your mortgage balance drops and your interest payments shrink.

What counts as deductible mortgage interest

Only interest on a loan secured by your home counts. The loan must be used to buy, build, or substantially improve your primary residence or one other home you own. Interest on a home equity line of credit (HELOC) or second mortgage is deductible only if you borrowed the money for home improvement, not for other purposes like paying off credit cards or buying a car.

Points paid to reduce your interest rate are also deductible, but the rules are strict. If you paid points upfront when you took out the mortgage, you can deduct them over the life of the loan, not all in one year. If you refinanced and paid new points, you must deduct those points over the life of the new loan. Points paid on a home purchase can sometimes be deducted in full in the year of purchase, but this depends on whether you paid them out of pocket or rolled them into the loan amount.

Mortgage insurance premiums (PMI) were deductible in some years but are not currently deductible as of 2024. Check with a tax preparer about whether this changes in future years, as Congress sometimes extends this deduction temporarily.

The Form 1098 and calculating your deduction

Your mortgage lender sends you Form 1098 (Mortgage Interest Statement) by January 31 each year. This form shows the total mortgage interest you paid during that year. You use this number to calculate your itemized deduction on Schedule A of your tax return.

The Form 1098 also reports property taxes paid through an escrow account held by your lender. Property taxes are separately deductible (up to $10,000 per year for all state and local taxes combined), so do not confuse mortgage interest with property tax deductions.

If you paid off your mortgage early or made a large principal payment, your interest payments for that year will be lower than in previous years. This is why your deduction shrinks over time as you pay down the principal balance. After 30 years, when the mortgage is paid off, you have no more mortgage interest to deduct.

Refinancing and how it affects your deduction

When you refinance, you take out a new loan to pay off the old one. The interest you pay on the new loan is deductible under the same rules as your original mortgage, as long as the new loan is also secured by your home and used for a may have access to purpose. If you refinance to pull cash out for home improvements, the interest on that portion is deductible. If you refinance to pull cash out for other reasons, the interest on that portion is not deductible.

Points paid on a refinance are deductible over the life of the new loan, not all at once. If you refinance again before the loan term ends, you can deduct any remaining points from the previous refinance in the year you pay off that loan.

Income limits and phase-outs

There are no income limits that prevent you from deducting mortgage interest. Unlike some tax deductions that shrink or disappear at higher incomes, mortgage interest deduction is available to anyone who itemizes, regardless of how much you earn.

However, higher earners are more likely to be subject to the Alternative Minimum Tax (AMT), which can limit or eliminate certain deductions. If you have a very high income or large deductions, a tax preparer can tell you whether AMT affects your mortgage interest deduction.

Frequently Asked Questions

Can I deduct mortgage interest if I take the standard deduction?

No. The mortgage interest deduction only works if you itemize deductions on Schedule A. If your itemized deductions are less than the standard deduction for your filing status, you take the standard deduction and receive no benefit from mortgage interest.

What if I paid off my mortgage early?

You can only deduct interest you actually paid. If you paid off the loan in June, you deduct only the interest paid through June. Once the loan is paid off, there is no more interest to deduct.

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

Interest on a mortgage for a second home you own is deductible under the same rules as your primary residence. Interest on a rental property or investment property is not deductible as a personal mortgage interest deduction; it is deducted as a business expense on Schedule E instead.

Does my spouse have to be on the mortgage for me to deduct the interest?

No. If you are married and file jointly, you can deduct mortgage interest on any home loan you are legally obligated to pay, even if only your name is on the deed or mortgage. The loan must be secured by a home you own.

What if I did not receive a Form 1098?

Contact your lender and request a copy. If the lender did not send one, you can still deduct the interest you paid if you have documentation like bank statements or loan statements showing the amount. Keep records of what you paid in case the IRS asks.