Decoding the Mortgage Interest Deduction
For many homeowners, the mortgage interest tax deduction is one of the most talked-about tax benefits of owning property. But as attractive as it sounds, it doesn’t always make sense to claim it — especially if your mortgage interest paid is lower than the standard deduction.
If you’re preparing your taxes and wondering whether this deduction is right for you, here’s what you need to know about how it works, what qualifies, and when it makes financial sense.
What the Mortgage Interest Deduction Allows
The mortgage interest deduction allows you to reduce your taxable income based on the amount of interest you paid on certain home loans. But it’s important to understand that it only applies up to a certain limit, and only for certain types of properties and loans.
For mortgages obtained after December 15, 2017, the deduction covers interest on up to $750,000 of debt for individuals or married couples filing jointly, and up to $375,000 for married individuals filing separately.
If you took out your mortgage earlier — between October 13, 1987, and December 15, 2017 — the cap is higher: interest on up to $1 million in debt, or $500,000 if you’re married and filing separately. And for those with mortgages dated on or before October 13, 1987, there’s no cap on the interest you can deduct.
It’s also worth noting that if you were under contract before December 15, 2017, and your mortgage closed before April 1, 2018, you fall under the older, more favorable $1 million limit.
These rules came into play with the Tax Cuts and Jobs Act of 2017, and many of its provisions are set to expire at the end of 2025, meaning the landscape could change again for the 2026 tax year.
What Counts as Deductible Mortgage Interest?
The IRS allows you to deduct interest from various types of home-related loans, as long as they’re tied to a “qualified” residence — usually your main home and, in some cases, a second home. Here are examples of what may qualify:
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Interest on the mortgage for your main residence, where you live most of the time.
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Interest on the mortgage for a second home, assuming you use it enough during the year and don’t treat it primarily as a rental.
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Interest on a home equity loan or HELOC, but only if the funds were used to buy, build, or improve the home tied to the loan.
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Interest on a construction loan, if the home is completed and qualifies as a residence within two years.
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Interest paid up to the date of sale if the home was sold during the tax year.
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Late payment fees related to mortgage interest.
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Prepayment penalties if you paid off your mortgage early.
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Points paid to lower your mortgage interest rate, either deducted all at once or spread out over the life of the loan, depending on your situation.
What Doesn’t Qualify?
Not every cost tied to homeownership is deductible. Some common expenses that don’t count toward the mortgage interest deduction include:
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Closing costs (except for deductible points)
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Down payments
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Payments toward the loan principal
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Mortgage insurance premiums
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Homeowners insurance
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Interest on reverse mortgages
These costs can still be significant, but they don’t impact your tax return when it comes to claiming mortgage interest.
Should You Take the Deduction?
Here’s the catch: the mortgage interest deduction is only available if you itemize your deductions using Schedule A on your tax return. For many people, the standard deduction offers a greater tax benefit than itemizing, especially after the Tax Cuts and Jobs Act nearly doubled the standard deduction in 2018.
For the 2024 tax year, the standard deduction is $14,600 for single filers, $21,900 for heads of household, and $29,200 for those married filing jointly. These amounts are slightly higher in 2025. Unless your mortgage interest (along with other deductible expenses like charitable contributions or medical costs) exceeds these amounts, it likely makes more sense to take the standard deduction.
If you do itemize, you’ll claim the mortgage interest deduction for the year in which the interest was paid. Your mortgage lender will send you IRS Form 1098 by early February, summarizing how much interest you paid over the past year. That document makes it easy to see if itemizing could be worth it.
Final Thoughts
The mortgage interest deduction can offer valuable savings for the right homeowner — but it’s not a one-size-fits-all benefit. The decision comes down to your loan size, the amount of interest paid, and whether it makes sense to itemize versus taking the standard deduction.
As always, consult with a tax professional to determine what’s best for your individual situation. And if you do plan to take the deduction, be sure to keep good records and use Form 1098 to help you claim it correctly.
Understanding this deduction before you file could make a real difference — not just for your tax return this year, but for how you manage your finances as a homeowner moving forward.
