The Home Mortgage Interest Deduction: How to Maximize Your Savings
With the home mortgage interest deduction, you don’t have to pay income tax on the money used for your mortgage payments. It’s a perk of homeownership, but it doesn’t apply to everyone with a mortgage, and the savings won’t always be that much.
Below is what you need to know about who qualifies, how to calculate how much you can save, and how to file for the deduction.
Key takeaways
- The home mortgage interest deduction is a tax break that lowers your IRS bill
- It only applies to interest paid on up to $750,000 of your principal mortgage balance
- It makes financial sense for only a small portion of homeowners, since you must itemize your taxes in order to claim it
What is the home mortgage interest deduction?
The home mortgage interest deduction lets homeowners deduct the interest they paid on a home loan during the tax year, lowering their total taxable income.
To qualify, the loan must be:
- A mortgage on your primary residence or second home
- Used to buy, build or substantially improve the property
The mortgage interest deduction doesn’t reduce your tax bill by the exact dollar amount you paid in mortgage interest. It’s not a “dollar-for-dollar” rebate like a mortgage tax credit. Instead, you’ll reduce your tax bill indirectly, by reducing your taxable income.
How much mortgage interest is deductible?
The home mortgage interest deduction has a limit, based on when you took out your loan and whether you’re filing with a spouse. That limit caps the portion of your mortgage that can be used for the deduction.
Caps on deductible mortgage interest
| Loan’s closing date | Amount of principal mortgage balance | |
|---|---|---|
| For individuals or married couples filing jointly | For married couples filing separately | |
| After Dec. 16, 2017 | $750,000 | $375,000 |
| Before Dec.16, 2017 | $1,000,000 | $500,000 |
How much can I deduct with the home mortgage interest deduction?
Your mortgage lender will send you a tax form, called Form 1098, that details the amount of mortgage interest you paid over the year. (Note that your lender is only required to send you this form if you paid more than $600 in interest.)
You can also use Schedule A of IRS tax form 1040, which guides you step by step on how to figure out the amount of mortgage interest you can deduct.
Should I take the home mortgage interest deduction?
The home mortgage interest deduction only applies if you are itemizing your deductions — and, for most people, it doesn’t make financial sense to do so.
Many homeowners save more money by taking the standard IRS deduction instead of itemizing, meaning they won’t be able to include home mortgage interest deduction.
Rule of thumb
You should only use the home mortgage interest deduction if all of your itemized deductions add up to more than the standard deduction.
Example:
Let’s say you’re a single person who made $65,000 this tax year and paid $8,000 in mortgage interest.
If the home mortgage interest deduction is the only itemized deduction you qualify for, then you would be better off not taking it.
This is because your standard deduction as an individual is $14,600, so you would pay taxes on only $50,400 of your income. But if you took the mortgage interest deduction instead, you would have to pay tax on $57,000 of your income ($65,000 minus $8,000 for the mortgage interest).
The standard deduction amounts in 2024 are:
- $14,600 for individuals and married couples filing separately
- $29,200 for married couples filing jointly
- $21,900 for unmarried heads of households
The standard deduction amounts in 2025 are:
- $15,000 for individuals and married couples filing separately
- $30,000 for married couples filing jointly
- $22,500 for unmarried heads of households
Why the home mortgage interest deduction is less popular than it used to be
The Tax Cuts and Jobs Act of 2017 virtually doubled the standard deduction for most taxpayers.Since then, the number of Americans itemizing has fallen sharply. In the year after the passage of the Act, 40% fewer taxpayers used the mortgage interest tax deduction.
What’s deductible? Loans and expenses that qualify
Mortgages used to buy a primary home or second home, including refinanced mortgages
Mortgages used to build or improve your primary or second home.
Exceptions: Although home improvements are tax-deductible, home repairs are not.
Home equity debt on a primary or second home.
Exceptions: The interest paid on home equity loans, home equity lines of credit (HELOCs) and the cash portion of cash-out refinances aren’t deductible, unless you used the funds for buying, building or substantially renovating your home.
Other types of tax-deductible interest
The interest portion of your monthly mortgage payment isn’t the only type of interest you can deduct from your tax bill. You can also deduct:
→ Mortgage points, or prepaid interest, paid at closing
→ Mortgage insurance premiums, including private mortgage insurance, insurance on FHA and USDA loans, and on the VA funding fee.
→ Late payment charges that aren’t for a specific loan service
→ Prepayment penalties for paying your mortgage off early
How to claim the home mortgage interest deduction
- Review your mortgage interest tax form(s). Check the amount of interest listed as paid in Box 1 of each copy of Form 1098 you receive. You should receive a separate 1098 for each loan you’re still paying off.
- Account for additional mortgage interest. Lenders don’t need to send you a Form 1098 unless you paid at least $600 in interest during the tax year. So if you want to deduct any interest not listed on a Form 1098, you’ll need to identify and document it.
- Calculate the total mortgage interest you paid. Add up the interest you paid on your mortgages, whether from a Form 1098 or not, to get your total for the tax year.
- Identify other itemized deductions. While you’re at it, you should check to see if you qualify for tax breaks besides your mortgage interest. You may want to find a tax professional for help.
- Decide whether to itemize or take the standard deduction. Compare the standard deduction amount to your itemized deductions (including your total deductible mortgage interest). If the total itemized deductions are more, then you will save money by itemizing deductions.
- Claim the mortgage interest deduction and any other deductions you qualify for. Fill out Schedule A of Form 1040 and include it in your tax return.
How the home mortgage interest deduction could change in 2025
The Tax Cuts and Jobs Act (TCJA) had a huge impact when it arrived to alter the tax code in 2017, but those changes came with an expiration date: the final day of 2025.Before then, the government might extend the TCJA’s effects on the standard deduction, or it might let things go back to the way they were before 2017 — when the standard deduction was roughly half of what it is today.
Frequently asked questions
Anyone who owns a home — or who is filing jointly with a spouse who owns a home — can choose to take the mortgage interest deduction. Most home types qualify, including condos, mobile homes and houseboats.
A second home only qualifies for the home mortgage interest deduction if you don’t rent to anyone. Rental property is not eligible for the tax break. Your second home is is considered a rental property if you use it for less than 14 days a year, or for less than 10% of the days you rented it.
Yes, any points paid on a mortgage refinance are tax-deductible, but not all at once. You must divide the points across all of the payments you will make over the life of the loan, and you can only deduct the portion of the point payment for the tax year you’re filing for.
Some lawmakers have called for changes to the home mortgage interest deduction, with three bipartisan commissions having recommended converting it to a tax credit. Critics of this plan say it would inflate housing costs, entice people to buy bigger homes than they may need, and largely benefit the wealthy.