Mortgage interest is deductible only if you itemize deductions on your tax return, and only on loans up to $750,000 of the home's purchase price
You can deduct the interest you pay on a mortgage, but not automatically. The IRS allows it only if you itemize deductions instead of taking the standard deduction, and only if your loan meets specific rules. For most people, the standard deduction is larger, so they do not benefit from deducting mortgage interest even though they could.
The loan must be secured by your home — meaning the house itself is collateral — and the debt cannot exceed $750,000 (or $375,000 if you are married filing separately). If you took out the loan before December 16, 2017, the limit is $1,000,000. The interest must also be on money borrowed to buy, build, or substantially improve the home. Interest on a cash-out refinance counts only on the portion of the new loan that replaced the old one.
Home equity lines of credit and home equity loans follow the same rules as mortgages: the interest is deductible if you itemize, the total debt does not exceed the limits, and the money was used for home improvement. Interest on a HELOC used to pay off credit cards or fund other expenses does not may have access to.
Key Takeaways
- Mortgage interest is deductible only if you itemize deductions on Schedule A, which most homeowners do not do because the standard deduction is larger.
- The loan must be secured by your home and cannot exceed $750,000 in principal (or $1,000,000 if the loan originated before December 16, 2017).
- The money must have been used to buy, build, or improve the home; interest on cash-out refinances counts only on the amount that paid off the previous loan.
- You report mortgage interest on Form 1098, which your lender sends you each January, and you enter it on Schedule A if you itemize.
Itemizing versus the standard deduction
The standard deduction is a flat amount you can subtract from your income without listing individual expenses. For 2024, it is $14,600 for single filers and $29,200 for married couples filing jointly. If your mortgage interest plus other deductible expenses (property taxes, state income taxes, charitable donations, medical expenses) add up to more than the standard deduction, itemizing saves you money.
Most homeowners do not reach that threshold. A $400,000 mortgage at 7 percent interest costs about $28,000 in the first year, but you can only deduct interest on the first $750,000 of the loan. Even then, you must add up all your other deductible expenses to see if the total exceeds the standard deduction. If it does not, you take the standard deduction instead, and the mortgage interest deduction does you no good.
You decide which method to use each year. Some years you may itemize; other years you may take the standard deduction. You cannot do both in the same year.
What counts as deductible mortgage interest
Interest on a first mortgage, second mortgage, or home equity line of credit all count, as long as the total debt is secured by your home and does not exceed the $750,000 limit. The money must have gone toward purchasing, building, or improving the home. If you borrowed $50,000 against your home to pay for a car or a vacation, that interest does not may have access to.
On a refinance, only the interest on the amount that replaced your old loan is deductible. If you had a $300,000 mortgage and refinanced for $350,000, the $50,000 in new money is treated as a home equity loan. Interest on that $50,000 is deductible only if you used it for home improvement.
Points paid to lower your interest rate are also deductible, but the rules are strict. Points on a purchase or improvement are deductible in the year you pay them. Points on a refinance must be deducted over the life of the loan, unless you refinance again (in which case you can deduct any remaining points from the old loan in that year).
How to report mortgage interest on your return
Your lender sends you Form 1098 by January 31 each year, showing the interest you paid in the previous year. The form lists the address of the home, the loan balance, and the total interest. Check it against your own records; lenders make mistakes.
If you itemize deductions, you enter the mortgage interest from Box 1 of Form 1098 on Schedule A, line 8. You then add up all your itemized deductions and compare the total to the standard deduction. If the itemized total is higher, you use Schedule A. If not, you take the standard deduction and ignore the mortgage interest.
If you paid interest to a lender that did not send you a Form 1098 — which can happen with private loans or if the interest was under $600 — you can still deduct it, but you must have documentation. Keep your loan papers and payment records.
Loans that do not may have access to
Interest on a loan that exceeds the $750,000 limit is not deductible at all, even on the portion below the limit. If you borrowed $800,000, none of the interest counts. This rule applies to the total of all loans secured by the home, so a $500,000 first mortgage plus a $300,000 home equity line of credit would exceed the limit.
Interest on a home equity loan used for anything other than home improvement does not may have access to. If you borrowed against your home to pay off credit card debt, fund a business, or pay for education, that interest is not deductible. The same applies to a cash-out refinance: only the interest on the amount that paid off the previous loan is deductible.
If you are not a U.S. citizen or resident alien, or if the home is not in the United States, the deduction does not explore. Vacation homes and rental properties have different rules and are handled separately on your return.
When mortgage interest deductions save the most money
The deduction is most valuable early in the loan, when most of your payment goes to interest rather than principal. On a 30-year mortgage, the first payment is almost entirely interest; by year 15, it is split roughly evenly. As you pay down the loan, the deductible interest shrinks each year.
The deduction also matters more if you have other large deductible expenses. High earners in states with steep income taxes (California, New York, New Jersey) often have enough deductible state and local taxes to cross the itemization threshold, which then makes the mortgage interest deduction valuable too. Someone in a state with no income tax may never reach the threshold, even with a large mortgage.
If you are considering a refinance or taking out a home equity loan, the mortgage interest deduction should not be your main reason. The interest rate, loan term, and fees matter far more to your actual cost. The tax deduction is a secondary benefit, not a reason to borrow.
Frequently Asked Questions
Can I deduct mortgage interest if I take the standard deduction?
No. The mortgage interest deduction is available only if you itemize deductions on Schedule A. If you take the standard deduction, you cannot also deduct mortgage interest. You must choose one method or the other each year.
What if my mortgage interest is less than $600 a year?
Your lender may not send you a Form 1098 if the interest is under $600. You can still deduct it if you itemize, but you must have documentation of the interest paid. Keep your loan statements or a letter from your lender showing the amount.
Does interest on a home equity line of credit count the same way as mortgage interest?
Yes, if the money was used for home improvement and the total debt does not exceed $750,000. If you used the HELOC for other purposes, the interest does not may have access to. The interest is reported the same way: on Form 1098 and Schedule A if you itemize.
Can I deduct interest on a second home or vacation property?
Yes, if the home is used as a residence (not rented out) and the loan meets the same rules as a primary home. A vacation home you own and use yourself qualifies. A rental property has different rules and is reported separately.
What happens to my mortgage interest deduction if I pay off my loan early?
You deduct only the interest you actually paid in that year. If you pay off the loan in June, you deduct only the interest through June. The remaining balance and future interest are no longer deductible because the loan no longer exists.