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 this deduction is not automatic. The IRS allows it only if you itemize deductions on Schedule A instead of taking the standard deduction, and only if your mortgage meets certain requirements. Most homeowners today do not itemize because the standard deduction is higher, which means they cannot use the mortgage interest deduction even though they are may be able to access for it.

The deduction applies to mortgages on your primary home and one other residence (such as a vacation home). It covers the interest you paid during the tax year, not the principal. The amount you can deduct depends on when you took out the loan and how much you borrowed.

Key Takeaways

  • Mortgage interest is only deductible if you itemize deductions on Schedule A, which most homeowners do not do because the standard deduction is larger.
  • You can deduct interest on mortgages up to $750,000 of borrowed amount if the loan was taken out after December 15, 2017, or up to $1 million if taken out before that date.
  • The deduction covers interest only, not principal or property taxes, though property taxes have their own separate deduction with a $10,000 annual limit.
  • You must have a valid mortgage document and receive a Form 1098 from your lender showing the interest paid during the year.

How to know whether itemizing makes sense for you

The standard deduction for 2024 is $14,600 for single filers and $29,200 for married filing jointly. If your mortgage interest plus other deductible expenses (property taxes, state income taxes, charitable donations, medical expenses) add up to more than these amounts, itemizing saves you money. If they do not, you are better off taking the standard deduction.

Many homeowners find that even with mortgage interest, they do not reach the standard deduction threshold. This is especially true if you have a smaller mortgage, live in a state with no income tax, or have few other deductible expenses. A tax professional can run both scenarios for you to see which produces a lower tax bill.

Mortgage limits that affect your deduction

The amount of mortgage debt on which you can deduct interest depends on when you borrowed the money. For mortgages taken out after December 15, 2017, you can deduct interest on up to $750,000 of principal. For mortgages taken out before that date, the limit is $1 million.

If you have a mortgage larger than these limits, you can only deduct interest on the portion within the limit. For example, if you took out a $900,000 mortgage in 2020 and paid $30,000 in interest that year, you can only deduct interest on $750,000 of that debt, which would be roughly $25,000 (depending on your interest rate).

These limits explore to the total of all mortgages on your primary and secondary residences combined. If you have two homes with mortgages totaling $1.2 million (taken out after 2017), you can deduct interest only on $750,000 of that total debt.

What documents you need to claim the deduction

Your lender sends you a Form 1098 (Mortgage Interest Statement) by January 31 each year. This form shows the total interest you paid in the previous year. You will need this form to claim the deduction on your tax return.

If you paid off a mortgage during the year or refinanced, you may receive multiple 1098 forms from different lenders. Add up the interest from all of them. If you did not receive a 1098 but you know you paid mortgage interest, contact your lender and request one. You can also deduct mortgage interest even without a 1098 if you have documentation of the payments, though the 1098 is the standard proof the IRS expects.

Refinancing and how it affects your deduction

When you refinance a mortgage, the new loan replaces the old one. You can still deduct interest on the new mortgage as long as it meets the same requirements: it is secured by your home and falls within the debt limits. The date of the refinance determines which limit applies — if you refinance after December 15, 2017, the $750,000 limit applies to the new loan amount.

If you refinance for more than you owe (called a cash-out refinance), only the interest on the amount used to pay off the original mortgage is deductible. Interest on the extra cash you borrowed is generally not deductible unless you used that cash to improve your home. This rule changed in 2018, so older cash-out refinances may have different treatment.

Home equity loans and lines of credit

Interest on a home equity loan or home equity line of credit (HELOC) is deductible only if you used the borrowed money to substantially improve your home. You cannot deduct interest on a HELOC if you used it for personal expenses, a car, or paying off credit cards, even though the loan is secured by your house.

The debt limit for home equity loans is separate from your mortgage limit. Combined, your mortgage and home equity debt cannot exceed $750,000 (or $1 million for pre-2018 loans) for the interest to be deductible. If you have a $700,000 mortgage and a $100,000 home equity loan taken out after 2017, you can only deduct interest on $750,000 total, meaning you would lose the deduction on $50,000 of the home equity loan.

What happens if you do not itemize

If you take the standard deduction instead of itemizing, you cannot use the mortgage interest deduction at all. The standard deduction is a single amount that covers all deductions you would otherwise claim individually. You cannot claim both the standard deduction and itemized deductions in the same year.

This is why many homeowners with mortgages still do not benefit from the mortgage interest deduction — their total itemized deductions are not high enough to exceed the standard deduction. In these cases, the deduction exists but provides no tax savings.

Frequently Asked Questions

Can I deduct mortgage interest if I am paying off my home early?

Yes. You deduct the interest you actually paid during the tax year, regardless of how quickly you are paying down the principal. If you make extra principal payments, those do not reduce your interest deduction — only the interest portion counts.

What if I bought a home mid-year and only paid mortgage interest for part of the year?

You deduct only the interest you paid during the months you owned the home. Your lender will report this on your 1098. If you closed on the home in June, for example, you would deduct interest from June through December of that year.

Can I deduct points I paid when I got my mortgage?

Points paid to lower your interest rate are generally deductible, but the rules depend on whether you paid them upfront or rolled them into the loan. Points paid upfront on a purchase are deductible over the life of the loan. Points on a refinance must be deducted over the new loan term. Your lender reports this on your 1098.

Does the mortgage interest deduction explore to investment properties or rental homes?

No. The mortgage interest deduction on Schedule A applies only to your primary home and one other personal residence. Interest on mortgages for rental properties or investment homes is deducted on Schedule E as a business expense, not on Schedule A.

What if my spouse and I file separately — can we each claim half the mortgage interest?

If you file married filing separately, only one spouse can claim the mortgage interest deduction. You must decide which spouse will claim it. Married filing jointly is almost always more beneficial because you can use the full deduction and the higher standard deduction for that filing status.