📋 In This Guide
How the Mortgage Interest Deduction Works
The mortgage interest deduction allows homeowners to subtract the interest they pay on their home loan from their taxable income. This reduces your tax bill—but only if you itemize deductions instead of taking the standard deduction.
The Basic Math:
Example: You paid $18,000 in mortgage interest this year
Your tax bracket: 24%
Potential tax savings: $18,000 × 24% = $4,320
But here's where it gets tricky: you only benefit from the mortgage interest deduction if your total itemized deductions exceed the standard deduction.
2025 Mortgage Interest Deduction Limits:
| Loan Originated | Maximum Loan Amount | Notes |
|---|---|---|
| After Dec 15, 2017 | $750,000 | Current limit (TCJA) |
| Before Dec 15, 2017 | $1,000,000 | Grandfathered loans |
| Married Filing Separately | $375,000 | Half the limit |
⚠️ Important: TCJA Expiration
The Tax Cuts and Jobs Act (TCJA) provisions are set to expire after 2026. If Congress doesn't act, the mortgage interest deduction limit could return to $1,000,000 in 2026. However, the standard deduction would also decrease, potentially making itemizing more beneficial for more taxpayers.
Who Qualifies for the Mortgage Interest Deduction?
✅ You CAN Deduct Interest If:
- Primary Residence: The home you live in most of the year
- Second Home: A vacation home you use personally (with restrictions)
- Acquisition Debt: Loan used to buy, build, or substantially improve the home
- Secured by the Home: The mortgage must be secured by the property
❌ You CANNOT Deduct Interest On:
- Home Equity Loans for Non-Home Purposes: Used to pay off credit cards, buy a car, etc.
- Third Home or Beyond: Only primary + one second home qualify
- Investment Properties: Rental properties have different rules (Schedule E)
- Amounts Over the Limit: Interest on debt exceeding $750K is not deductible
What About Home Equity Loans?
Home equity loans and HELOCs are deductible only if the funds are used to "buy, build, or substantially improve" the home that secures the loan. Using a HELOC to renovate your kitchen? Deductible. Using it to pay for a vacation? Not deductible.
💡 Pro Tip: Track Your Loan Usage
If you take out a home equity loan, keep detailed records of how you use the funds. If audited, you'll need to prove the money went toward home improvements to claim the deduction.
Itemize vs. Standard Deduction: Which Is Better?
This is the million-dollar question (well, maybe the $29,200 question). Here's how to figure out which approach saves you more money.
2025 Standard Deduction Amounts:
| Filing Status | Standard Deduction |
|---|---|
| Single | $14,600 |
| Married Filing Jointly | $29,200 |
| Married Filing Separately | $14,600 |
| Head of Household | $21,900 |
The Itemization Math:
To benefit from itemizing, your total itemized deductions must exceed the standard deduction. Common itemized deductions include:
Example: Married Filing Jointly
- Mortgage Interest: $15,000
- Property Taxes: $8,000
- State Income Taxes: $6,000
- Charitable Donations: $3,000
- Total Itemized: $32,000
$32,000 > $29,200 standard deduction = Itemizing saves $2,800 × tax rate
Example: When Standard Deduction Wins
- Mortgage Interest: $10,000
- Property Taxes: $5,000
- State Income Taxes: $4,000
- Charitable Donations: $1,000
- Total Itemized: $20,000
$20,000 < $29,200 standard deduction = Take the standard deduction
⚠️ SALT Cap Alert
State and local taxes (SALT)—including property taxes and state income taxes—are capped at $10,000 total ($5,000 if married filing separately). This cap significantly reduces the benefit of itemizing for many homeowners in high-tax states like California, New York, and New Jersey.
How to Claim the Mortgage Interest Deduction
Step 1: Get Your Form 1098
Your mortgage servicer will send you Form 1098 by January 31st. This form shows:
- Box 1: Mortgage interest received (the amount you can potentially deduct)
- Box 2: Outstanding mortgage principal
- Box 3: Mortgage origination date
- Box 5: Mortgage insurance premiums (if applicable)
Step 2: Calculate Your Itemized Deductions
Add up all your potential itemized deductions:
- Mortgage interest (Form 1098, Box 1)
- Property taxes (up to $10,000 SALT cap)
- State/local income or sales taxes (up to $10,000 SALT cap combined)
- Charitable contributions
- Medical expenses (over 7.5% of AGI)
Step 3: Compare to Standard Deduction
If your itemized deductions exceed the standard deduction, file Schedule A with your Form 1040. If not, take the standard deduction.
💡 Tax Software Makes This Easy
Most tax software (TurboTax, H&R Block, etc.) automatically compares your itemized deductions to the standard deduction and recommends the better option.Compare tax software options here.
Other Homeowner Tax Deductions & Credits
Mortgage interest isn't the only tax benefit for homeowners. Here are other deductions and credits you might qualify for:
🏠 Property Tax Deduction
Deduct property taxes up to $10,000 (combined with state income taxes under SALT cap).
💰 Mortgage Points
Points paid to lower your interest rate are generally deductible in the year paid (for purchase) or over the loan term (for refinance).
🏡 Home Office Deduction
If you're self-employed and work from home, you may deduct a portion of mortgage interest, property taxes, utilities, and more.
☀️ Energy Tax Credits
Solar panels, heat pumps, and other energy improvements may qualify for federal tax credits of 30% of the cost.
📈 Capital Gains Exclusion
When you sell, exclude up to $250K ($500K married) in capital gains if you've lived in the home 2 of the last 5 years.
🏗️ Home Improvement Records
Keep receipts for improvements—they increase your cost basis and reduce capital gains when you sell.
🔍 Not Sure If You're Maximizing Your Tax Benefits?
A good mortgage can save you thousands in taxes. Compare rates from multiple lenders to make sure you're getting the best deal.
Compare Mortgage Rates →5 Strategies to Maximize Your Mortgage Tax Savings
Bunch Deductions in Alternating Years
If you're close to the standard deduction threshold, consider "bunching" deductions. Make two years of charitable donations in one year, prepay property taxes, etc. Itemize in the bunching year, take standard deduction the next year.
Time Your Home Purchase Strategically
Buying late in the year means you'll have less mortgage interest to deduct that year. If you're close to itemizing, buying earlier in the year gives you more interest to deduct.Get pre-approved to start your home search.
Consider Paying Points on a New Mortgage
Mortgage points are fully deductible in the year you buy a home (for purchase loans). If you're already itemizing, paying points can lower your rate AND give you a bigger deduction.
Use Home Equity for Home Improvements
If you need to borrow money, a home equity loan used for home improvements is tax-deductible. Using a personal loan or credit card for the same purpose is not.
Don't Pay Off Your Mortgage Just for Tax Reasons
The tax deduction is nice, but you're still paying interest. If your mortgage rate is 7% and you're in the 24% bracket, you're effectively paying 5.32% after the tax benefit. That's still 5.32% you're paying. Don't keep a mortgage just for the deduction.
📊 Real-World Examples
Example 1: High-Income Couple in California
Situation:
- $600K mortgage at 6.5%
- $39,000 mortgage interest
- $12,000 property taxes
- $8,000 state income taxes
- $5,000 charitable donations
Tax Calculation:
- Mortgage interest: $39,000
- SALT (capped): $10,000
- Charity: $5,000
- Total itemized: $54,000
- Benefit over standard: $24,800
Example 2: Median-Income Couple in Texas
Situation:
- $300K mortgage at 6.5%
- $19,500 mortgage interest
- $6,000 property taxes
- $0 state income taxes (Texas)
- $2,000 charitable donations
Tax Calculation:
- Mortgage interest: $19,500
- Property taxes: $6,000
- Charity: $2,000
- Total itemized: $27,500
- Standard deduction wins: $29,200
💰 Ready to Maximize Your Mortgage Tax Benefits?
The right mortgage can save you thousands in taxes. Compare rates from multiple lenders to find the best deal for your situation.
Compare Mortgage Rates Now →❓ Frequently Asked Questions
Is mortgage interest 100% tax deductible?
Yes, if your mortgage is under $750,000 and you itemize deductions. However, you only benefit if your total itemized deductions exceed the standard deduction.
Can I deduct mortgage interest on a rental property?
Yes, but it's handled differently. Rental property mortgage interest is deducted on Schedule E as a business expense, not on Schedule A as an itemized deduction.
What if I refinanced my mortgage?
Interest on the refinanced loan is deductible up to the original loan amount. If you did a cash-out refinance, the additional amount is only deductible if used for home improvements.
Is PMI (mortgage insurance) tax deductible?
The PMI deduction expired at the end of 2021 and has not been renewed. As of 2026, PMI is NOT tax deductible. However, Congress could reinstate it—check for updates.
What happens to the mortgage interest deduction in 2026?
The TCJA provisions expire after 2026. Unless Congress acts, the mortgage interest deduction limit would return to $1,000,000, but the standard deduction would also decrease significantly.