Mortgage interest is tax deductible only if you itemize deductions and meet specific conditions

You can deduct mortgage interest on your federal tax return, but only if two things are true: you itemize deductions instead of taking the standard deduction, and your mortgage meets the IRS rules for what qualifies. Most homeowners do not itemize anymore because the standard deduction is now large enough that itemizing saves them nothing. Even among those who do itemize, the deduction only helps if your total itemized deductions exceed the standard deduction for your filing status.

The mortgage must be secured debt — meaning the lender can foreclose if you do not pay — and the loan must be used to buy, build, or improve your home. A cash-out refinance where you borrow against your home's equity to pay for something else (a car, credit card debt, or a vacation) makes that portion non-deductible. The IRS also caps the deduction: you can only deduct interest on up to $750,000 of mortgage debt if you are married filing jointly, or $375,000 if you are single or married filing separately. Mortgages taken out before December 16, 2017, have a higher cap of $1 million.

Key Takeaways

  • Mortgage interest is only deductible if you itemize deductions on your tax return, which most homeowners do not do because the standard deduction is larger.
  • The mortgage must be secured by your home and used to buy, build, or improve it — not to pay off other debts or fund other expenses.
  • The IRS limits the deduction to interest on $750,000 of mortgage debt for married couples filing jointly ($375,000 for single filers), or $1 million for mortgages taken out before December 16, 2017.
  • You report mortgage interest on Schedule A (Form 1040) if you itemize, and your lender sends you Form 1098 each January showing how much you paid that year.

Itemizing versus the standard deduction

The standard deduction is a flat amount you can subtract from your income without listing individual expenses. For 2024, the standard deduction is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household. If your mortgage interest plus other deductible expenses (property taxes, state and local taxes up to $10,000, charitable donations, medical expenses above 7.5% of income) add up to more than your standard deduction, itemizing saves you money.

For most homeowners, especially those with mortgages under $400,000 in states with low property taxes, the standard deduction is larger. You would need a combination of high mortgage interest, high property taxes, and other deductible expenses to come out ahead by itemizing. A tax professional or tax software can calculate both routes and show you which saves more.

What counts as deductible mortgage interest

Only interest you actually paid counts — not principal. Your lender sends you Form 1098 each January showing the interest you paid the previous year. In the early years of a mortgage, most of your payment goes to interest, so the deduction is larger. As years pass and you pay down the principal, the interest portion shrinks and so does the deduction.

Points paid to lower your interest rate are also deductible, but the rules are strict. Points on a mortgage to buy or build your home can be deducted in full in the year you pay them. Points on a refinance must be deducted over the life of the loan (usually 15 or 30 years), unless you refinance again or pay off the loan early. If you paid points in a previous year and are still deducting them, you report them on Schedule A along with your mortgage interest.

The $750,000 debt limit and older mortgages

If your mortgage is larger than $750,000 (or $375,000 if you file single), you can only deduct interest on the first $750,000. For example, if you have a $900,000 mortgage and paid $30,000 in interest last year, you can only deduct the interest that applies to the first $750,000 of the loan. Your lender does not calculate this for you — you have to figure out what portion of your interest payment applies to the amount over the limit and subtract it.

Mortgages taken out on or before December 15, 2017, have a higher limit: you can deduct interest on up to $1 million of debt. If you refinanced after that date, the new loan falls under the $750,000 cap, even if the original mortgage was larger. If you took out a home equity line of credit or second mortgage after December 15, 2017, interest on that debt is not deductible at all unless you used the money to buy, build, or improve your home.

How to report mortgage interest on your tax return

If you itemize deductions, you report mortgage interest on Schedule A (Form 1040), which you file along with your main tax return. The IRS provides line-by-line instructions with the form. You enter the amount from your Form 1098 in the mortgage interest box, then add it to your other itemized deductions (property taxes, charitable donations, and so on) to get your total. If that total is higher than your standard deduction, you use Schedule A. If it is lower, you take the standard deduction instead and ignore Schedule A.

Keep your Form 1098 and any documentation of points you paid. The IRS does not usually ask for these unless you are audited, but having them on hand makes it straightforward to answer questions. If your lender does not send you a Form 1098 or the amount is wrong, contact them to request a corrected form before you file.

Mortgages that do not may have access to

Interest on a mortgage used for anything other than buying, building, or improving your home is not deductible. If you took out a home equity loan or line of credit to pay off credit card debt, fund a business, or pay for a car, that interest does not count. The same rule applies to cash-out refinances: if you refinanced your $300,000 mortgage for $400,000 and used the extra $100,000 to pay off other debts, you can only deduct interest on the original $300,000.

Interest on a second home or investment property follows the same rules as a primary residence — it is deductible if you itemize and the mortgage meets the debt limits. Interest on a rental property, however, is handled differently and is reported on Schedule E (Form 1040) as a business expense, not as an itemized deduction.

State and local tax considerations

Some states allow you to deduct mortgage interest on your state tax return even if you do not itemize on your federal return. A few states (like New York) have their own mortgage interest deduction with different rules and limits. Check your state's tax instructions or speak with a tax professional to see whether your state offers this deduction and whether it makes sense for your situation.

Property taxes are also deductible if you itemize, but the total of property taxes and state and local income taxes (or sales taxes) is capped at $10,000 per year. This cap can affect whether itemizing is worth it, especially in high-tax states. If you pay $8,000 in property taxes and $5,000 in state income tax, you hit the $10,000 cap and cannot deduct the extra $3,000 of state income tax.

Frequently Asked Questions

Do I have to itemize to deduct mortgage interest?

Yes. You can only deduct mortgage interest if you file Schedule A and itemize your deductions. If you take the standard deduction, you cannot deduct mortgage interest. For most homeowners, the standard deduction is larger than the total of all itemized deductions, so they do not benefit from deducting mortgage interest.

Can I deduct mortgage interest if I pay off my loan early?

You deduct only the interest you actually paid in that tax year. If you pay off your mortgage in June, you deduct the interest paid from January through June. You do not deduct interest on the remaining balance because you did not pay it.

What if my lender did not send me a Form 1098?

Contact your lender and ask for a corrected form. If they do not send one, you can still deduct the mortgage interest you paid — you just have to calculate it yourself using your loan statements. Keep records of what you paid in case the IRS asks.

Can I deduct interest on a home equity line of credit?

Only if you used the money to buy, build, or improve your home. If you used a home equity line of credit to pay off credit cards or fund other expenses, that interest is not deductible. The debt limit ($750,000 total for all mortgages and home equity loans) applies to the combined balance.

Does refinancing change what I can deduct?

Refinancing itself does not change your deduction — you still deduct the interest you pay on the new loan. However, if your new loan is larger than $750,000, the debt limit applies. Points paid on a refinance must be deducted over the life of the new loan, not all at once.