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- Mortgage borrowers can deduct the interest they pay on their taxes. But there are limits.
- Certain mortgage-related costs or interest on second mortgages may also be deducted in some cases.
- This deduction may not be worth it if you can save more with the standard deduction.
By the time you're done paying off a 30-year mortgage, you'll potentially have paid hundreds of thousands of dollars in interest to your lender. Because mortgages take so long to pay off, borrowers rack up a lot of interest along the way.
Fortunately, you can put this expense to good use by deducting it when you pay your income taxes. Here's our guide to the mortgage interest deduction for homeowners.
What is the mortgage interest deduction?
The mortgage interest tax deduction is one of many tax deductions available to homeowners.
Tax deductions work by lowering your taxable income, ultimately reducing the amount of taxes you need to pay in a given year. This is different from a tax credit, which is a dollar-for-dollar reduction in what you owe.
Here's what you need to know about the mortgage interest tax deduction:
Definition
With the mortgage tax deduction, you can write off all or a portion of the interest you pay on your mortgage. This directly lowers your total taxable income, which can mean a lower total tax bill.
Here's an example of a mortgage interest tax deduction in action: Say you paid $20,000 in interest on your mortgage in 2024. If your yearly salary is $120,000, you can use the mortgage interest you paid to reduce your taxable income to $100,000. This means you'll only pay taxes on $100,000 of your income, not $120,000.
Eligibility
First and foremost, you can only take advantage of this deduction if you're itemizing your tax deductions. If you're taking the standard deduction, you won't be eligible.
The other main requirement to qualify for this deduction is that your mortgage must be secured by your home, meaning your home acts as collateral for the loan. But what types of homes and home loans qualify?
Eligible home types
You can deduct the mortgage interest paid on your main home and one second home. If you rent out your second home for a portion of the year, you'll be able to deduct the interest you paid as long as you stayed in the home yourself for the greater of:
- More than 14 days
- More than 10% of the number of days that the home was rented during the year
Otherwise, it's considered rental property, which comes with its own set of rules regarding tax deductions.
According to the IRS, a qualifying home can be a:
- House
- Condo
- Co-op
- Mobile home
- House trailer
- Boat
If your home doesn't fit into one of these categories, it may still qualify as long as it has sleeping, cooking, and toilet facilities.
Eligible interest
Interest paid on a purchase or refinance mortgage can be deducted. You may also be able to deduct interest paid on a second mortgage, depending on how you used the funds.
Second mortgages include home equity loans and home equity lines of credit (HELOCs). The IRS states that if you used the money from one of these loans to "buy, build, or substantially improve" your home, you can deduct the interest you paid on these loans. Otherwise, this interest isn't deductible.
Other costs that can be treated as mortgage interest for the sake of this deduction include:
- If you incur a charge as a result of making a late mortgage payment, you may be able to deduct that charge
- If you pay off your mortgage early and are charged a prepayment penalty, this cost may also be deductible as mortgage interest
- Prepaid interest or mortgage points can generally be deducted over the life of the loan
How does the mortgage interest deduction work?
The mortgage interest deduction works by lowering your taxable income, thereby reducing your tax bill as well. You can only use this deduction if you itemize your returns, though, and for many homeowners, it's not worth it.
Itemized vs. standard deductions
Everyone gets the option to itemize their deductions or take the standard deduction. The standard deduction enables the average taxpayer to get a tax deduction without having to go through the trouble of keeping track of every expense and line item that could result in a reduction of taxable income.
To use the mortgage interest deduction — or any other specific deduction, for that matter, you'll have to itemize your returns.
"When you're doing your taxes, you have to look at what your standard deduction is and compare that to your itemized deductions," says Eric Bronnenkant, head of tax at Betterment.
Form 1098
Your mortgage lender will send you a Form 1098 at the beginning of each year. Box 1 on the form will tell you how much you paid in mortgage interest in the previous year.
Don't forget to factor in all eligible mortgage interest, including interest paid on an eligible second mortgage, home equity loans, or HELOC or other costs that can be treated as mortgage interest, like late charges or mortgage points.
Schedule A (Form 1040)
If you plan on itemizing your deductions, you'll need to fill out a Schedule A form and attach it to your Form 1040 when you file your income taxes.
If you use tax software to file, it will walk you through this process. Just make sure to have all your documentation, like your Form 1098, nearby so you can reference it as needed.
Mortgage interest deduction limits
There's no cap on how much interest you can deduct on your taxes when utilizing this deduction, but there are limits to how much of the loan amount can be used for the deduction. This is called the mortgage interest deduction phase-out.
Current limits
If you closed on your mortgage after December 15, 2017, you can deduct interest paid on loan amounts up to $750,000 for single and joint tax filers and $375,000 for those married filing separately. If your mortgage amount is larger than this, you can only deduct what you paid on the first $750,000 of that loan.
"Let's say you borrowed $1 million, then you'd only be able to count the interest on the first $750,000," Bronnenkant says. "In that case, you'd be limited to 75% of the interest on $1 million."
Grandfathered limits
If you got your mortgage on or before December 15, 2017, you are grandfathered into larger deduction limits and can deduct interest paid on mortgage amounts up to $1 million.
Who benefits most from the mortgage interest deduction?
The mortgage interest deduction isn't a good fit for every homeowner. It's typically best used by:
High-income taxpayers
Because higher earners are in costlier tax brackets, reducing their taxable income can often save them more money. For example, if the mortgage interest deduction would reduce the amount of income they have in the 37% bracket (the highest tier possible), it could mean serious savings on their total tax bill.
New homeowners
Recent homebuyers can also benefit from these write-offs, as they often pay more in interest than the typical homeowner. Not only do the bulk of mortgage payments go toward interest for the first few years of the loan, new homeowners can also deduct upfront interest (points) they paid at closing.
Large mortgage balances
The larger your loan balance, the more you can deduct and save (up to $750,000 in balances). So if your loan is close to that $750K max, you'll save more than a homeowner with a $200,000 loan would.
Should you itemize or take the standard deduction?
To decide if you should itemize your returns and use the mortgage interest deduction, you'll need to run the numbers. Here's how to do that.
Comparing the two
Just because you paid a large amount in mortgage interest last year doesn't necessarily mean taking the mortgage interest deduction is your best option.
For 2024 income taxes, the standard deduction is:
- $14,600 for those who are single or married and filing separately
- $21,900 for a head of household
- $29,200 for married couples filing jointly
If you think you could get a larger total deduction by itemizing, you might prefer to do that over taking the standard deduction.
When it passed in 2017, the Tax Cuts and Jobs Act nearly doubled the standard deduction amount. This, in addition to lowering the loan amount that qualifies for the mortgage interest deduction, means that fewer people are able to take advantage of this deduction.
Alternative Minimum Tax
Some taxpayers are subject to an Alternative Minimum Tax — a minimum amount of taxes that must be paid to the federal government in any given year. These are common with higher-income earners and could negate the impact that a mortgage interest deduction could have on your tax bill.
Frequently asked questions about mortgage interest deductions
Yes, mortgage points paid at closing can be deducted from your tax returns and spread out over the life of the loan. If you're not sure how to calculate the mortgage interest deduction in this scenario, use an online mortgage interest deduction calculator.
You may be able to deduct mortgage interest paid on a home equity loan or HELOC, but only if you used the funds to buy, build, or substantially improve your home.
If you sell your house, you can still deduct the interest you paid on your mortgage up to the date of sale.
For the mortgage interest deduction, the IRS says you can write off all interest on loans up to $750,000 (if single or filing jointly) or $375,000 (if you're married and filing separately.)
