Mortgage Interest Deduction: How It Works

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. Here’s an overview of the deduction and what you need to know for tax filing.

How much mortgage interest can be deducted?

The mortgage interest tax deduction allows you to deduct up to $750,000 in interest paid on eligible mortgages, or up to $375,000 if married filing separately. This applies to mortgages obtained after Dec. 15, 2017.

If you got the mortgage after Oct. 13, 1987 and prior to Dec. 16, 2017, you can deduct the interest paid on up to $1 million of that debt, or up to $500,000 if married filing separately. If you got the mortgage on or before Oct. 13, 1987, there is no cap or no upper limit.

These rules are the result of the Tax Cuts and Jobs Act of 2017. Many of the provisions of this law expire on Dec. 31, 2025, so the rules could change again for tax year 2026 and beyond.

The deduction applies to all mortgages on what the IRS deems “qualified” homes. This includes your main or primary home and a second home, provided you don’t rent out the second home, or you rent it for a portion of the year, but also use it yourself in that year.

What qualifies as mortgage interest?

The IRS considers mortgage interest as the interest paid on any loan secured by your main or primary home, or a second home. However, you can write off other mortgage-related costs through the mortgage interest deduction, as well. Here’s an overview:

• Interest on a mortgage for your main home: This is interest paid on the mortgage for your main or primary home, where you live most or all of the time.
• Interest on a mortgage for your second home: This is interest paid on the mortgage for your second home. If you rent out the second home, you have to use it yourself for more than 14 days or more than 10 percent of the amount of days you rented the home, whichever is longer, for it to qualify for the deduction. If you don’t, it’s considered a rental property, not a second home, and is subject to a different set of tax rules. If you have more than one property you consider a second home, you can only deduct interest associated with one of those properties per year.
• Interest on a home equity line of credit (HELOC) or loan for your main or eligible second home: You can only deduct this interest if the loan was used to buy, build or improve the property.
• Interest on a mortgage for a home under construction: The deduction applies to interest paid on a loan tied to a home under construction for up to 24 months, provided it becomes a qualified home once it’s complete.
• Interest on a mortgage for a home sold: You can deduct the interest on a mortgage for a qualified home you sold up to — but not including — the date of sale.
• Late payment fees: If you were late on a mortgage payment and charged a late fee, you can typically include it in the mortgage interest deduction.
• Prepayment penalty: If you paid off your mortgage early and were charged a prepayment penalty, you can usually include it in the mortgage interest deduction, too.
• Points: If you paid points to lower your interest rate, you can either fully deduct them in the year they were paid or spread out the deduction over the life of the mortgage, depending on your circumstances. This IRS flow chart can help you determine which applies to you.

What mortgage costs are not deductible?

Here are some mortgage-related costs you can’t include as part of the mortgage interest deduction:

• Closing costs (with the exception of points)
• Down payment
• Mortgage principal payments, including additional or extra payments
• Mortgage insurance premiums
• Homeowners insurance
• Reverse mortgage interest

Should you claim the mortgage interest deduction?

You can only claim the mortgage interest deduction if you itemize your deductions by filing a Schedule A with your Form 1040 or an equivalent. For many homeowners, the standard deduction is higher than the amount of their itemized deductions. Here are the standard deductions for tax years 2024 and 2025:

If it’s better for you to itemize, you’ll claim the mortgage interest deduction in the year the interest was paid. For points, you might be able to include them in full in the year they were paid, or need to stretch out the deduction over the life of the mortgage.

You don’t have to keep track of how much mortgage interest you paid during the year — your mortgage lender or servicer will send you a Form 1098 with this information in late January or early February.

FAQ on mortgage interest deduction

• What are the pros and cons of the mortgage interest deduction?
  

  The main pro of the mortgage interest deduction is that it lowers your tax liability, incentivizing you to get a mortgage and buy property. If you already itemize your deductions, it’s simply another way to help lower your tax bill.

  The downside is that many homeowners no longer benefit from taking the mortgage interest deduction, instead claiming the higher standard deduction. Another con: You’d have to itemize deductions, which requires more documentation and could complicate matters, especially if you do your own taxes.

• Is the mortgage interest deduction a tax credit?
  

  The mortgage interest deduction is not a tax credit. A credit reduces the tax you owe, whereas a deduction reduces your amount of taxable income. Some homeowners have a mortgage credit certificate, which allows a credit of up to $2,000 per year for as long as they have the mortgage. These certificates, or MCCs, are typically available to first-time or lower-income homebuyers working with a state housing finance agency to get a mortgage.

• What other tax deductions are available for homeowners?
  

  In addition to the mortgage interest deduction, homeowners might benefit from the state and local tax (SALT) deduction, which allows you to deduct up to $10,000 in combined income, property and sales taxes. As with the mortgage interest deduction, you’ll need to itemize to take advantage of the SALT deduction.