Some homeowners have at least one thing to look forward to during tax season: deducting mortgage interest. This includes any interest you pay on a loan secured by your primary residence or second home. This means a mortgage, a second mortgage, a home equity loan or a home equity line of credit (HELOC).
What is the mortgage tax deduction?
The mortgage interest deduction is a tax incentive for homeownership. It lets some taxpayers write off some of the interest charged by their home loan. The deduction once was a staple of homeownership, but it has grown less generous amid changes to the law and an era of super-low mortgage rates. Homeowners who locked in 3 percent rates during the pandemic are unlikely to spend enough on interest payments to meet the deduction thresholds.
Who qualifies for this deduction?
To qualify for a home mortgage interest tax deduction, homeowners must meet these two requirements:
- You filed an IRS form 1040 and itemized your deductions.
- The mortgage is a secured debt on a qualified home which you own.
How much interest can I claim?
Most homeowners can deduct all of their mortgage interest. The Tax Cuts and Jobs Act (TCJA), which is in effect from 2018 to 2025, allows homeowners to deduct interest on home loans up to $750,000. For taxpayers who use married filing separate status, the home acquisition debt limit is $375,000.
For mortgages that were taken out before December 16, 2017, the limits are higher. The same goes for borrowers who were under a binding contract by the December 16 deadline and closed before April 1, 2018. Those borrowers can deduct interest on loans up to $1 million or $500,000 for married, filing separately.
Changes and rules
The mortgage interest deduction is a political creation, and that means it’s subject to change. Key aspects of the tax break have changed over time.
2018 changes to the tax code
Beginning in 2018, the limits on qualified residence loans were lowered. Now, couples filing jointly may only deduct interest on up to $750,000 of qualified home loans, down from $1 million in 2017. For married taxpayers filing separate returns, the cap is $375,000; it was previously $500,000.
These limits include any combination of qualified loans, such as mortgages — including the popular 30-year mortgage — home equity loans and HELOCs.
For example, if you have a first mortgage that is $300,000 and a home equity loan that’s $200,000, all the interest paid on both of those loans may be deductible since you didn’t exceed the $750,000 cap.
If you took out a mortgage or a home equity loan/HELOC or both on or before December 15, 2017, you can still deduct the interest on up to $1 million in loans.
Home equity loans and HELOC rules
The new tax law also ended the deduction for interest on home equity indebtedness until 2026, unless one condition is met: You use HELOCs or home equity loans to pay for home improvements.
In other words, if you didn’t use your home equity loan to fix your roof, add another bedroom or make other upgrades to your residence, then that interest would not be tax deductible.
Remember to keep records of your spending on home improvement projects in case you get audited. You may even need to go back and reconstruct your spending for second mortgages taken out in the years before the tax law was changed.
FAQs
You can deduct the mortgage interest you paid during the tax year on the first $750,000 of your mortgage debt for your primary home or a second home. If you are married filing separately, the limit drops to $375,000.
How do I calculate my mortgage interest tax deductible? ›
Calculating your mortgage interest deduction is something you can do yourself. Divide the maximum debt limit by your remaining mortgage balance, then multiply that result by the interest paid to figure out your deduction.
How much money do you get back on taxes for mortgage interest? ›
You can deduct the interest you paid during the tax year on the first $750,000 of your mortgage. For married couples filing separately, the limit is $375,000.
How much is the standard deduction for mortgage interest? ›
Misconception 2: It Will Be a Hefty Deduction
| 2024 |
|---|
| Taxpayer Status | Standard Deduction (2024) | Value of Mortgage Deduction on $12,000 in Interest |
|---|
| Single | $14,600 | $4,200 |
| Head of Household | $21,900 | $4,200 |
| Married Filing Jointly | $29,200 | $4,200 |
If the loan is not a secured debt on your home, it is considered a personal loan, and the interest you pay usually isn't deductible. Your home mortgage must be secured by your main home or a second home. You can't deduct interest on a mortgage for a third home, a fourth home, etc.
Is the mortgage tax deduction worth it? ›
Claiming mortgage interest can save you money in taxes, even if you are limited in how much interest you can claim. However, this break typically only benefits people with large, expensive loans or a lot of other deductions. Keep an eye on how much interest you pay and compare it to the standard deduction.
How do I know if I can deduct mortgage interest? ›
For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.
Is homeowners insurance tax-deductible? ›
Some taxpayers have asked if homeowner's insurance is tax deductible. Here's the skinny: You can only deduct homeowner's insurance premiums paid on rental properties. Homeowner's insurance is never tax deductible your main home.
What is the tax deduction form for mortgage interest? ›
Form 1098 is used to report mortgage interest and related expenses paid for the year. Lenders must issue Form 1098 when a homeowner has paid $600 or more in mortgage interest during the tax year. To deduct mortgage interest, you must be the primary borrower on the loan and actively make payments.
Do you get a bigger tax return if you have a mortgage? ›
If you have a mortgage on your home, you can deduct your mortgage interest to reduce your total tax liability. If you purchased or refinanced your home recently, chances are that you have a relatively high interest rate.
You can deduct the interest from your mortgage payments when you file a tax return, but only if the loan is secured by your home. Also, the loan proceeds must have been used to buy, build, or improve your main home and one other home you own and use for personal purposes.
Who qualifies for the mortgage interest credit? ›
Who Does the Mortgage Credit Certificate Program Serve? The MCC program serves low to moderate income borrowers, generally first‐time homebuyers who earn no more than the greater of their statewide or area median income. 82 percent of MCC borrowers in 2022 earned the area median income or below.
What is the IRS limit on mortgage interest deduction? ›
You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebt- edness.
How to write off mortgage interest? ›
You'll need to itemize your deductions to claim the mortgage interest deduction. Since mortgage interest is an itemized deduction, you'll use Schedule A (Form 1040), an itemized tax form, and the standard 1040 form.
Can I deduct mortgage interest if I am not on the loan? ›
You can deduct your mortgage interest payments even when the deed to the house and the mortgage are in someone else's name.
What mortgage fees are tax-deductible? ›
Typically, the only closing costs that are tax-deductible are payments toward mortgage interest, buying points or property taxes. Other closing costs are not. These include: Abstract fees.
Can one person claim all mortgage interest if joint purchase? ›
Mortgage interest is deductible for the person who paid it. If you paid the whole mortgage from an individual account, you get 100% of the deduction. If the mortgage is paid from a joint account, each spouse typically deducts 50%.
Are mortgage points fully deductible? ›
You can fully deduct mortgage points in the year you paid them if all of these apply: You're using a cash method. You secured the mortgage loan with your main home. The charging of mortgage points is an established practice in the area.
