Yes – you generally must itemize your tax deductions in order to deduct mortgage interest on your U.S. federal income tax return.
This means you cannot deduct home mortgage interest if you take the standard deduction. In practical terms, only those taxpayers who forgo the built-in standard deduction and list their itemized expenses (including mortgage interest) get to claim this popular tax break. This rule has huge implications: today, with the standard deduction doubled since 2018, only about 10% of taxpayers itemize at all, down from nearly one-third before 2018.
For millions of homeowners, that means no direct tax write-off for mortgage interest unless their other deductible expenses are high enough to justify itemizing.
Stat spotlight: Fewer than 1 in 10 tax filers now itemize deductions, so many homeowners no longer see a separate tax savings for their mortgage interest. But if you play it right, the mortgage interest deduction can still put money back in your pocket. Below, we break down everything you need to know – from federal rules to state-by-state quirks – to help you maximize your savings (and avoid costly mistakes).
- 🏠 Mortgage Interest Deduction 101: What this tax break is, how it works, and current IRS rules for homeowners.
- 💰 Itemize vs. Standard Deduction: When it pays to itemize your return to deduct interest – and when the standard deduction is the better deal.
- ⚖️ Pros and Cons of Itemizing: The benefits of itemizing your mortgage interest vs. the drawbacks (like more paperwork) explained.
- 🌐 State-by-State Differences: How mortgage interest deductions vary across states, plus a handy chart comparing state tax rules.
- 🚫 Avoid Costly Mistakes: Common errors homeowners make with the mortgage interest deduction – and how to steer clear of them.
What Is the Mortgage Interest Deduction and How Does It Work?
The mortgage interest deduction is a tax benefit that lets homeowners deduct the interest paid on a home loan from their taxable income. In simple terms, if you own a home with a mortgage, the interest portion of your payments can reduce your tax bill. This deduction has been part of U.S. federal tax law for decades to encourage homeownership.
It applies to interest on loans used to buy, build, or substantially improve your primary residence (and one additional qualified residence, like a second home). The key idea is that interest payments for your home are tax-deductible, lowering the income you pay tax on – however, this is true only if you meet certain conditions.
How it works: Each year, your mortgage lender reports the total interest you paid (including certain upfront fees like points) on Form 1098 (Mortgage Interest Statement). You, as a homeowner, can claim that amount as a deduction on Schedule A of Form 1040 – which is the form for itemized deductions. By deducting mortgage interest, you effectively tell the IRS your taxable income is lower, since you spent that money on interest for your home.
For example, if you paid $8,000 in mortgage interest this year and you itemize, you could knock $8,000 off your taxable income. Depending on your tax bracket, that might save you roughly 22%–24% of that amount in taxes (whatever your marginal rate is).
What loans qualify: The deduction isn’t limited to traditional houses – it covers interest on mortgages for any qualified home you own, which can include a condominium, mobile home, boat, or RV if it has sleeping, cooking, and toilet facilities. The loan must be secured by the home (your home is collateral for the mortgage).
Interest on first mortgages, refinanced loans, and even second mortgages or home equity loans can qualify if the loan was used to buy, build, or improve the home. (Interest on a home equity loan used for personal expenses like paying off credit cards is not deductible under current law.)
You can deduct interest on your main home and one other home at most – for instance, a vacation house – but not on more than two residences. Combined, the deduction is subject to certain loan limits set by law (explained next).
IRS loan limits: Under current law, you can deduct home mortgage interest on the first $750,000 of mortgage debt used for acquiring or improving your homes (or up to $375,000 if you are married filing separately). In other words, if your total mortgages exceed $750k, the interest on the amount above that threshold is not deductible.
(If you bought your home before the end of 2017, you’re grandfathered into the older limit: interest on up to $1,000,000 of debt – plus up to $100,000 of home equity debt – remains deductible under the prior rules.) Most typical home loans fall under the cap, but owners of very expensive homes or multiple properties need to be aware of this restriction.
Also note: these debt limits currently apply for tax years 2018–2025 (the period covered by the Tax Cuts and Jobs Act). Starting in 2026, the cap is scheduled to revert to $1,000,000 of mortgage debt (absent new legislation), potentially expanding the deduction again for some homeowners.
Finally, remember that the mortgage interest deduction is an itemized deduction – part of the list of write-offs (like property taxes, charitable donations, medical expenses, etc.) that you can choose to add up on Schedule A instead of taking the standard deduction. This brings us to the crucial question: do you have to itemize to deduct mortgage interest? In almost all cases, the answer is yes – and that decision can make or break whether your interest actually saves you any money.
Itemize or Standard Deduction? Why You (Usually) Need to Itemize to Deduct Interest
To claim a mortgage interest deduction, you must itemize your deductions on your tax return rather than take the flat standard deduction. The IRS only allows one approach or the other each year – you can’t do both. The standard deduction is a fixed dollar amount that anyone can subtract from income, no questions asked.
It’s generous (for the 2023 tax year, for example, the standard deduction is $13,850 for a single filer and $27,700 for a married couple filing jointly, with annual inflation adjustments). Itemizing, on the other hand, means adding up specific deductible expenses – such as mortgage interest, property taxes, state income or sales taxes, charitable contributions, and certain medical costs – and claiming that total instead of the standard amount.
The important rule is: you should itemize only if your total itemized deductions exceed your standard deduction. If they don’t, you’ll pay less tax by just taking the standard deduction and not deducting your mortgage interest separately. This creates a threshold effect for homeowners. Your mortgage interest (plus other deductible bills) needs to be high enough to cross the standard deduction line before itemizing actually benefits you.
If not, the mortgage interest deduction won’t provide any tax savings, because you’d opt for the standard deduction anyway. In practical terms, your mortgage interest only helps you if it contributes to a total that beats the automatic deduction everyone gets.
To illustrate, let’s look at a common scenario for a homeowner:
Scenario 1: Small Mortgage – Standard Deduction Wins
| Situation | Tax Outcome |
|---|---|
| Single homeowner pays $5,000 in mortgage interest for the year, with no other major deductions (perhaps another $2,000 in property tax and charity). | Standard deduction is around $13,850 (2023 figure for single filers). Total itemized expenses would be only $7,000 – far below the standard amount. The homeowner will take the standard deduction and get no separate mortgage interest write-off, because itemizing would yield a smaller deduction than the standard $13,850. |
In Scenario 1, even though the person paid $5,000 in interest, they get zero tax advantage from it because the standard deduction eclipses their itemized total. This situation is very common, especially after 2017 when the standard deduction roughly doubled and the SALT (state and local tax) deduction was capped (making it harder to accumulate a big itemized total). Many homeowners with modest mortgages and few other deductions simply can’t itemize anymore.
Now consider someone with larger deductible expenses:
Scenario 2: Large Mortgage or Multiple Deductions – Itemizing Pays Off
| Situation | Tax Outcome |
|---|---|
| Married couple pays $20,000 in mortgage interest in a year, and also $8,000 in property taxes and $3,000 in charitable donations (total potential itemized = $31,000). | Standard deduction for married filing jointly is $27,700 (2023). Their itemized deductions sum to $31,000, which exceeds that. By itemizing, they deduct $31,000 (including all their mortgage interest) instead of taking the $27,700 standard. Result: They reduce their taxable income by an extra $3,300 compared to not itemizing. In a 22% tax bracket, that’s roughly $726 in additional tax savings. |
In Scenario 2, the couple’s mortgage interest (combined with other expenses) is high enough that itemizing clearly benefits them. By itemizing, they can deduct all $20k of interest and more, whereas the standard deduction would have left some of that tax benefit on the table. The key takeaway: if your mortgage interest and other allowable costs are substantial, itemizing can save you money – but if not, the standard deduction is likely your best bet.
It’s important to note that you can only choose one method on your federal return. Each year, you should compare your potential itemized total to the standard deduction for your filing status (tax software or a tax advisor can help you run the numbers).
If you decide to itemize, you’ll fill out Schedule A and list your mortgage interest (among other deductions). If you take the standard deduction, you won’t use Schedule A at all – your mortgage interest won’t appear on the return as a deduction. (Even though your lender reports it on Form 1098, it doesn’t count if you’re not itemizing.)
Bottom line: Yes, you have to itemize to deduct mortgage interest on your federal return. There’s no above-the-line or standalone deduction for it. The only exception is a separate program called a Mortgage Credit Certificate (MCC) for certain first-time homebuyers, which provides a tax credit for part of your mortgage interest – but that’s a specialized case and not a standard deduction. For the vast majority of homeowners, it’s itemize-or-bust when it comes to writing off mortgage interest.
Decoding Key Tax Terms (Itemizing, Standard Deduction, and More)
Before diving deeper, let’s clarify some key tax terms and concepts related to deducting mortgage interest:
- Itemized Deductions: Individual expenses the tax code lets you deduct from income if you forgo the standard deduction. Itemized deductions are reported on Schedule A and include categories like home mortgage interest, real estate taxes, state and local income or sales taxes, charitable contributions, and medical expenses (above certain thresholds). You tally these up and they replace your standard deduction if the total is higher. Essentially, itemizing lets you pick and choose specific deductions to exceed the standard amount.
- Standard Deduction: A flat dollar amount that reduces your taxable income, available to every taxpayer by default. It’s a no-questions-asked deduction – you don’t need to provide any receipts or proof of expenses. The catch is you can’t deduct anything else (like mortgage interest) on top of it. The standard deduction amount depends on your filing status (single, married, head of household, etc.) and is adjusted annually for inflation. After the 2017 tax reform, the standard deduction roughly doubled, which drastically reduced the number of people who benefit from itemizing.
- Schedule A (Form 1040): The tax form used to report itemized deductions. If you decide to itemize, you list all your deductible expenses on Schedule A, and the total from that schedule is subtracted from your income instead of the standard deduction. Mortgage interest paid (as reported on Form 1098) is entered on Schedule A in the section for interest deductions.
- Qualified Residence: In IRS lingo, a “qualified residence” is basically a home that qualifies for the mortgage interest deduction. This includes your primary residence (main home where you live most of the time) and one other second home (which you use for personal purposes during the year). You must be legally responsible for the debt on the home for the interest to be deductible.
- (You can’t, for example, deduct interest on your parents’ mortgage unless you are a co-borrower or co-owner of the property.) Also, note that interest on rental or investment properties is handled differently – it’s generally deducted on a different part of your return as a business expense, not as a personal itemized deduction (more on that later).
- Acquisition Debt vs. Home Equity Debt: These terms refer to why you borrowed the money. Acquisition indebtedness means a loan used to acquire, build, or substantially improve a qualified residence (e.g. your original mortgage or a loan for a home addition). Home equity indebtedness generally meant other borrowing against your home’s equity (like a cash-out refinance or HELOC used for personal expenses). Prior to 2018, interest on up to $100,000 of home equity debt was deductible regardless of use.
- But from 2018 through 2025, the IRS allows deduction of home equity loan interest only if the loan proceeds were used to buy, build, or improve the home. In short, you can still deduct home equity interest – but only if that loan is essentially acting as an acquisition loan for home improvement. If you took out a HELOC to, say, pay off credit cards or fund a wedding, that interest is not deductible under current law.
- Form 1098 (Mortgage Interest Statement): The tax form your lender sends you (and the IRS) each year by January 31, stating how much interest you paid on your mortgage for the prior year. It may also report points and any mortgage insurance premiums.
- This form is your starting point for claiming the mortgage interest deduction. If you paid less than $600 in interest for the year, a lender might not be required to issue a 1098, but you can still deduct the interest if it’s otherwise eligible – just be sure to keep your own records of the payments.
- Tax Cuts and Jobs Act (TCJA) of 2017: A major tax law change that, among other things, increased the standard deduction significantly, capped the state and local tax (SALT) deduction at $10,000, and lowered the mortgage debt limit from $1 million to $750,000 for new loans. TCJA’s changes (effective 2018–2025) led to a sharp drop in the number of taxpayers who itemize.
- It expires after 2025, meaning that in 2026, unless extended, the standard deduction will shrink back to pre-2018 levels (with inflation adjustments) and the mortgage interest debt limit will return to $1 million for newly incurred loans. This upcoming change could make itemizing more attractive again for some homeowners in the future.
Understanding these terms helps clarify why the mortgage interest deduction is valuable for some and irrelevant for others. Next, let’s weigh the general advantages and disadvantages of itemizing your deductions (including mortgage interest) to see when it makes sense.
Pros and Cons of Itemizing Your Mortgage Interest
Is itemizing worth it just to deduct your mortgage interest? It depends on your situation. Here are some pros and cons of itemizing (versus taking the standard deduction):
| Pros of Itemizing | Cons of Itemizing |
|---|---|
| Larger deduction if eligible: Itemizing allows you to deduct all your qualified expenses (mortgage interest, property taxes, state taxes, charitable donations, etc.) if they exceed the standard deduction. This can significantly lower your taxable income if you have high costs. | Only helps if you clear the threshold: If your itemized expenses don’t exceed the standard deduction, itemizing yields no benefit. Many homeowners find their mortgage interest isn’t enough to push them over the standard limit – especially after 2017’s higher standard deduction. |
| Tax savings on big expenses: By itemizing, you get tax breaks for specific big-ticket payments – interest on a sizable mortgage, high property or state taxes, large charitable gifts, major medical bills (above the AGI floor). These can save you far more than the flat standard deduction would. | More complexity and record-keeping: Itemizing requires saving receipts, tracking expenses, and filling out Schedule A. It’s more work and paperwork than the one-line standard deduction, which is automatic and requires no documentation of expenses. |
| Flexibility to deduct various items: Itemizing covers categories like state/local taxes, real estate taxes, mortgage interest, investment interest, charitable donations, and more. You can benefit from these if applicable – whereas the standard deduction ignores them. | Benefit can be marginal: Even if you do itemize, if your itemized total is only slightly above the standard deduction, your extra tax savings might be small. (For example, itemizing $500 above the standard might save only ~$100 in tax.) Sometimes the payoff for itemizing is not much greater than the standard deduction. |
| Possible state tax benefits: If your state allows itemized deductions, itemizing federally means you can also itemize on your state return (in states that require the same choice). This could reduce your state taxes by deducting mortgage interest there too. | Standard deduction is simpler: By taking the standard deduction, you avoid the risk of mistakes like miscalculating deductions or missing documentation. Itemized deductions can sometimes draw IRS attention if something looks unusual, whereas the standard deduction is straightforward. |
Itemizing is worthwhile for homeowners who have enough deductions to comfortably surpass the standard deduction – often those with larger mortgages, high local taxes, or significant charitable contributions. It can lead to substantial tax savings in such cases.
On the flip side, for homeowners with smaller mortgages or minimal other deductions, itemizing just for the mortgage interest may not yield a net benefit. Itemizing only makes sense when it genuinely exceeds the no-hassle standard deduction. Always consider both the tax savings and the effort involved: if itemizing only gives you a marginally bigger deduction, the simplicity of the standard deduction might be preferable.
State-by-State Differences: Deducting Mortgage Interest on State Taxes
So far we’ve focused on federal tax law. But what about your state income taxes? States often have their own rules for deductions, and they don’t always match the federal system. When it comes to mortgage interest, the key question is: can you deduct it on your state return, and do you have to itemize at the state level to do so?
The answer varies widely by state. Some states follow the federal approach closely, while others have quirks. Here are some state-specific nuances:
- States with No Income Tax: If you live in a state with no personal income tax (for example, Florida, Texas, Nevada, Washington, and several others), you don’t file a state income tax return, so there’s no state mortgage interest deduction to worry about. The tax benefit of your mortgage interest (if any) would only come on your federal return.
- States that Require Federal Itemization: Many states allow you to claim itemized deductions on your state tax return only if you also itemized on your federal return. In these states, if you took the standard deduction federally, you cannot itemize for state purposes – meaning you’d miss out on any state deduction for mortgage interest. States in this category include Virginia, Maryland, Georgia, New Jersey, and many others.
- For example, New Jersey does not allow the federal mortgage interest deduction at all on the state return (NJ has its own limited set of write-offs, like a property tax deduction/credit). Maryland and Virginia do allow state itemized deductions (including mortgage interest) but only if you itemized federally; if you claimed the federal standard deduction, you must take the state standard deduction as well.
- States Allowing Separate State Itemization: Some states are more flexible and let you itemize on your state return even if you took the federal standard deduction. This can be a tax-saver if your state has a lower standard deduction or additional deductible categories.
- States that allow this “unlinked” itemizing include California, New York, Illinois, North Carolina, Alabama, Wisconsin, Hawaii, and others. For instance, California taxpayers can choose to itemize or take a state standard deduction independently of what they did on the federal return. This means you could take the high federal standard deduction (forgoing a federal mortgage interest deduction) but still itemize for California to deduct your mortgage interest on your state taxes. It’s a bit more work but ensures you don’t miss out on a state-level benefit.
- States with No Itemized Deductions: A few states don’t offer a traditional itemized deduction system at all (often because they have a flat tax or simplified tax code). For example, Massachusetts and Pennsylvania do not allow itemized deductions; they either tax fewer things or provide only a small number of specific deductions. In Massachusetts, there is no state deduction for mortgage interest – everyone effectively takes a built-in standard deduction or personal exemption, with no Schedule A.
- Pennsylvania similarly doesn’t permit deduction of mortgage interest on the PA state return, since it taxes only certain classes of income and disallows most personal deductions. In these states, whether you itemize federally or not, your mortgage interest simply isn’t deductible on the state income tax return.
It’s clear that location matters. Below is a comparison chart summarizing how different states handle the mortgage interest deduction:
| State Category | Mortgage Interest Deduction on State Return |
|---|---|
| No state income tax (e.g. FL, TX, NV, WA) | N/A – No state income tax means no state deduction needed. Your mortgage interest only figures into your federal taxes. |
| State requires federal itemization (e.g. VA, MD, GA, NJ, etc.) | Must itemize federally to deduct on state. If you took the federal standard deduction, you cannot claim mortgage interest on the state return. These states tie their itemized deductions to your federal choice. |
| State allows itemizing regardless of federal (e.g. CA, NY, NC, WI, AL, HI, etc.) | Can itemize on state even if not on federal. You could take the federal standard deduction yet still file a state Schedule A to deduct mortgage interest for state purposes. This can maximize your benefit in high-tax states. |
| No itemized deductions in state tax (e.g. MA, PA, NJ*) | No state deduction for mortgage interest. These states either don’t allow itemized write-offs or have separate limited deductions, so mortgage interest isn’t deductible on the state return. (New Jersey, for example, disallows most federal deductions entirely.) |
(Note: NJ has no general itemized deductions but does offer a property tax deduction/credit; it disallows mortgage interest deduction on the state return.)
Scenario 3: Federal Standard Deduction, Itemizing on State Return
| Situation | Tax Outcome |
|---|---|
| A single homeowner in California paid $5,000 in mortgage interest (and has about $3,000 in other deductions) – total $8,000 of potential itemized deductions. Federal standard deduction is ~$13,850; California’s standard deduction is only about $5,500. | Federal: Takes the $13,850 standard deduction, so no mortgage interest is deducted on the federal return. California: Chooses to itemize since $8,000 > state standard. They deduct the $8,000 (including the $5,000 interest) on their CA state return, reducing their state taxable income. This saves them money on state taxes even though federally they got no mortgage interest deduction. |
What does this mean for you? If you pay mortgage interest and live in a state with an income tax, check your state’s tax rules or instructions. If your state lets you itemize independently, you might get a state tax break on your mortgage interest even in years you take the federal standard deduction. On the other hand, if your state requires conformity with the federal choice, then the only way to benefit on your state taxes is to also itemize federally. This “decoupling” or lack thereof can influence your overall strategy.
Common Mistakes to Avoid with the Mortgage Interest Deduction
The mortgage interest deduction can be a bit tricky. Homeowners often make mistakes or hold misconceptions that can cost them money or lead to IRS issues. Here are some common mistakes and pitfalls to avoid:
1. Assuming you’ll get a tax break just because you have a mortgage. Many first-time homeowners eagerly anticipate tax savings from their mortgage interest, only to find out they still take the standard deduction. Remember, if your total deductions don’t exceed the standard amount, your mortgage interest won’t actually be deducted. It’s a mistake to assume a mortgage automatically guarantees a lower tax bill. Always run the numbers. After the 2017 tax reform, lots of homeowners no longer get a benefit here.
2. Forgetting to itemize (or not itemizing when you should). If you do have substantial deductions (interest and otherwise) above the threshold, you need to actively choose to itemize on your tax return to get the benefit. Some people miss out because they don’t realize they crossed that line, or because they use tax software that defaults to the standard deduction. Make sure to itemize in any year it would give you a larger deduction – even if you don’t itemize every year.
3. Itemizing when it’s not actually beneficial. The flip side: Don’t stubbornly itemize just to deduct mortgage interest if the standard deduction would be more. Occasionally, people try to itemize simply because they have a mortgage, even though their total deductions are lower than the standard. This can hurt you by yielding a smaller deduction overall. Always take the larger deduction available – itemized or standard. There’s no rule that homeowners must itemize; you’re allowed to take the standard deduction if it’s better for you (and often it is).
4. Misunderstanding what interest is deductible. Only interest on a qualified home loan is deductible. Personal interest on credit cards, car loans, or unsecured loans is not. Even for home loans, if you refinanced and took cash out for something unrelated to the home, that portion of interest might not qualify under current rules. Ensure any home equity loan interest you deduct meets the “buy, build, or improve” test.
Also, interest on more than two residences, or on loan amounts beyond the allowed cap, is not deductible. Some taxpayers mistakenly try to deduct interest on a third vacation home or on mortgage debt above the limit – which the IRS will disallow if noticed.
5. Neglecting to include points or prepaid interest. If you paid upfront points or “loan origination fees” when you took out your mortgage (essentially prepaying some interest to get a lower rate), those amounts can often be deducted as mortgage interest. Check your Form 1098 – it will list deductible points in a separate box if applicable. A common mistake is to overlook these or to deduct points incorrectly.
For a new purchase mortgage, points are generally fully deductible in the year paid (as long as certain conditions are met). For a refinance, points usually must be deducted over the life of the loan (amortized each year). Don’t leave these valuable deductions on the table, and follow IRS guidelines on how to deduct them.
6. Claiming interest you didn’t actually pay or that isn’t yours. You can only deduct mortgage interest that you (and your spouse if married) are legally obligated to pay, and which you actually paid during the year.
If you co-own a home with someone who is not your spouse (say two friends buying a house together, or an unmarried couple), each of you should deduct only the interest proportionate to what you paid – and not more than the total interest reported on the 1098. If the Form 1098 is in one name but both contributed, you may need to attach a brief explanation or otherwise coordinate who claims what.
Similarly, if you sold a home or bought a home during the year, make sure you only deduct the interest for the portion of the year you owned the home. (The closing statement shows how interest was split between buyer and seller.) Over-deducting interest – for example, both the buyer and seller each claiming the full year’s interest in the year of sale – is a mistake to avoid.
7. Ignoring the married-filing-separately trap. If you are married and file separate tax returns (MFS), be aware of special rules. First, the mortgage debt limit for deductions is essentially halved ($750k becomes $375k limit each if filing separately). Second, if one spouse itemizes, the other spouse must itemize – they cannot take the standard deduction while their partner itemizes.
This means if your spouse itemizes to claim deductions (like mortgage interest), you get zero standard deduction and should itemize any deductions you have as well, even if small. Some MFS filers miss this rule, leading to an incorrect return. Always coordinate itemizing vs. standard with your spouse if filing separately.
8. Overlooking state tax opportunities. As discussed, if you live in a state that allows itemizing on the state return even when you took the federal standard deduction, take advantage of it. It’s a mistake to ignore your state taxes. For example, you might use the standard deduction federally (thus not deducting your mortgage interest on the federal return), but your state might still let you itemize and deduct that interest on the state return. Failing to do so would mean paying more state tax than necessary.
Conversely, if your state requires you to have itemized federally in order to itemize on the state return, don’t assume you can mix-and-match; plan accordingly.
9. Not keeping records or proof. Usually, the Form 1098 from your lender is all the proof you need of your mortgage interest paid. But if you paid interest to a private party (for example, the seller financed your mortgage, or you have a private loan with no bank), you might not receive a 1098. You can still deduct the interest, but keep good records (canceled checks, loan statements, etc.) of the payments as evidence.
Also, for refinances or home equity loans, keep documentation of how you used the funds – especially if some uses might make interest non-deductible (like using proceeds to pay personal expenses). Good record-keeping will protect you if the IRS ever questions your deduction or if you need to allocate interest between personal and rental use.
Avoiding these pitfalls will ensure you get the full benefit of the mortgage interest deduction if you’re entitled to it – and that you don’t waste time or risk errors if you’re not.
Special Cases and Additional Tips
Homeownership and taxes can involve some special situations beyond the basics. Here are a few additional tips and scenarios related to mortgage interest:
- Refinanced Mortgages: If you refinance your home loan, the interest remains deductible (subject to the same limits) as long as the new loan doesn’t exceed the amount of the original loan principal (plus any additional funds used for home improvements). If you refinance for a higher amount and pull cash out for non-home purposes, the interest on that extra portion of the debt won’t be deductible.
- Also pay attention to points on a refinance – typically you must deduct those points over the life of the loan rather than all at once. However, if you refinance again or pay off the loan early, any remaining undeducted points can usually be deducted in that year. Keep track of any refinance-related points so you don’t forget to deduct them over time.
- Second Homes and Vacation Properties: Interest on a second home or vacation home is deductible if you itemize, subject to the same total mortgage debt limits. You must designate which property is your primary home versus the second home (usually it’s obvious). Be mindful if you rent out your vacation home part of the year – if you rent it too much and use it yourself too little, the IRS might consider it a rental property rather than a personal second home, which changes how the interest is deducted.
- Generally, if you personally use the vacation home for more than 14 days a year (or more than 10% of the rental days, if you rent it out), it counts as a second home for the mortgage interest deduction. If your personal use is less than that, then the home might be treated as a rental property for tax purposes, and the interest would be deducted on Schedule E instead.
- Rental or Investment Properties: Interest on a mortgage for a rental property is deductible, but not as an itemized deduction. Instead, it’s a business expense that you claim against your rental income on Schedule E (regardless of whether you itemize your personal deductions).
- Don’t confuse rental property interest with your personal home mortgage interest. If you rent out a portion of your home or use part of your home for a business (home office), you would allocate the appropriate percentage of interest to those activities (deducting it on Schedule E or your business schedule) rather than deducting it all on Schedule A.
- That’s a more complex allocation situation – the main point is that the mortgage interest deduction we’ve been discussing applies to your personal residences. Interest on rental or business properties falls under different tax rules.
- Mortgage Insurance Premiums: Many homeowners pay private mortgage insurance (PMI) or government mortgage insurance premiums (e.g. FHA loan MIP) when their down payment is below 20%. For several years, Congress allowed these premiums to be deducted as if they were mortgage interest (an itemized deduction).
- However, that provision expired after 2021. Unless it’s reinstated, you cannot deduct mortgage insurance premiums for 2022 and beyond. (From 2018 through 2021, PMI was deductible for eligible taxpayers, subject to income phase-outs.) Be aware of this – some people continue to assume PMI is deductible when it is currently not. Keep an eye on tax law changes in case Congress extends or renews this benefit, but as of now, don’t include PMI on your Schedule A.
- Mortgage Credit Certificate (MCC): One exception to benefiting from mortgage interest without itemizing is an MCC. An MCC is a program offered by many state and local housing authorities for first-time or low-income homebuyers. If you have an MCC (you would receive a certificate at the time you took out your mortgage), it allows you to claim a percentage of your mortgage interest as a tax credit (often 20% or 30% of the interest, up to $2,000). A credit directly reduces your tax bill dollar-for-dollar, and you can claim it even if you take the standard deduction. The remaining interest (the portion not claimed as a credit) can still be deducted if you itemize. MCCs are relatively niche, but if you have one, be sure to use it – it’s essentially free tax savings for part of your interest.
- Notable Court Case – Unmarried Co-Owners: A significant court case, Sophy v. Commissioner (2015), confirmed that the mortgage interest deduction limits apply per taxpayer for unmarried individuals who co-own a home (rather than per property). In practical terms, two unmarried co-owners can each deduct interest on up to the maximum mortgage debt limit for the same house – effectively doubling what a married couple could deduct on that property.
- The IRS has acquiesced to this Ninth Circuit ruling, so this interpretation now applies in practice. This is a specialized situation, but it can mean a bigger combined deduction if you and an unrelated co-owner share a very large mortgage.
- Future Changes: Always keep an eye on tax law updates. Many provisions of the current tax law are scheduled to expire after 2025. For example, the standard deduction will decrease (making it more likely that more people will itemize again) and the mortgage interest debt limit will revert to $1,000,000 for new loans. Lawmakers have also floated proposals to convert the mortgage interest deduction into a tax credit available to all taxpayers, though nothing like that has been enacted yet. In short, tax laws evolve – stay informed each year so you can adjust your strategy and maximize your tax benefits under the current rules.
FAQ: Frequently Asked Questions
Q: Can I deduct my mortgage interest if I take the standard deduction?
A: No. If you claim the standard deduction, you cannot separately deduct mortgage interest. You only get a mortgage interest deduction in a year you choose to itemize your deductions.
Q: Is it worth itemizing just for the mortgage interest deduction?
A: Yes, if your mortgage interest plus other deductions exceed your standard deduction. If not, then no – you’re better off taking the standard deduction and you won’t benefit from itemizing that year.
Q: Does everyone with a mortgage itemize their taxes?
A: No. In fact, most homeowners do not itemize. Only about 10% of tax filers itemize nowadays, meaning many people with mortgages still take the standard deduction and get no direct mortgage interest deduction.
Q: Can I deduct mortgage interest on a second home?
A: Yes. Interest on a second home is deductible if you itemize, subject to the same total loan limit. Just ensure the home meets the IRS’s personal-use criteria (not primarily a rental).
Q: What about mortgage interest on rental property – can I deduct that?
A: Yes, but not as an itemized deduction. Interest on a rental or investment property is deducted as a business expense on Schedule E, regardless of whether you itemize your personal deductions.
Q: If I co-own a house with someone, can we both deduct the interest?
A: Yes. Each co-owner can deduct the portion of interest they personally paid. Unmarried co-owners may each use the $750,000 mortgage debt limit separately (effectively doubling the deductible amount compared to a married couple).
Q: My mortgage is small now. Should I keep it for the tax deduction?
A: No. Don’t keep a mortgage just for the tax break – the deduction only saves you a fraction of the interest you pay. It rarely makes sense to pay interest just to get a deduction.
Q: Are private mortgage insurance (PMI) premiums deductible?
A: No (not currently). The tax deduction for PMI expired after 2021. Unless Congress renews it, you cannot deduct mortgage insurance premiums for 2022 and later tax years.
Q: Can I deduct my mortgage interest without a Form 1098?
A: Yes, as long as you’re legally liable for the loan and paid the interest, you can deduct it even without a 1098 form. Just keep records of the payments as proof.
Q: If I took the standard deduction federally, can I deduct mortgage interest on my state return?
A: Yes, in some states. Certain states let you itemize on the state return even if you took the federal standard deduction. Check your state’s rules – it’s allowed in places like California or New York.
Q: Will the mortgage interest deduction ever apply to people who don’t itemize?
A: No, not unless the law changes. Some proposals would turn it into a credit anyone can claim, but as of now you still must itemize (though rules could change after 2025).