You can lower your taxable income by deducting the interest you pay on your mortgage, provided certain IRS rules are met. This deduction applies to loans used to buy, build, or improve your main home and one other personal residence. Understanding how the mortgage interest deduction works, including limits on loan amounts and the choice between itemizing or taking the standard deduction, can help you maximize your tax savings. In this post, you’ll learn what qualifies, how to claim the deduction, and important updates to take advantage of when filing your taxes.

What Are the Tax Benefits of Mortgage Interest?

Deducting mortgage interest can significantly reduce your taxable income, especially in the early years when interest makes up most of your payments. By itemizing deductions, you benefit from lowering taxes owed on interest paid up to $750,000 of mortgage principal for loans originated after 2017. Beyond just interest, points paid at closing may also be deductible, further enhancing your tax savings. Understanding how these benefits interact with filing status and loan details helps you make more informed tax decisions.

Which Mortgage Interest Is Deductible for Homeowners?

You can deduct interest only if your mortgage is secured by your home and the loan proceeds were used to buy, build, or improve your primary or one additional personal residence. Interest on loans used for rental properties generally doesn’t qualify as an itemized deduction but can be claimed as a rental expense. Home equity loan interest counts toward the $750,000 limit when funds improve your home, while any interest on debt not tied to property purchase or improvement is nondeductible.

Mortgage Interest Deduction Limits: What You Can Claim

The IRS caps deductible mortgage interest on acquisition debt to $750,000 for loans closed after December 15, 2017, down from $1 million for earlier loans. This limit applies jointly to your combined mortgage balances for both your primary and secondary residences, and is halved if you file separately. For example, if your combined mortgage on two homes exceeds $750,000, you can only deduct interest on that maximum amount, not the full loan balances.

Loans initiated before December 16, 2017, maintain the higher $1 million cap, including an additional $100,000 for certain home equity debt. If you and your spouse file separately, each has a $375,000 limit on acquisition debt deduction. Keeping track of these thresholds is vital, especially if you refinance or take additional loans, since all mortgage debt is aggregated for deduction limits. Strategic borrowing and timing of loans can optimize your deductible interest.

Is Mortgage Interest Still Tax-Deductible in 2025?

Yes, mortgage interest is still deductible on your federal tax return in 2025—as long as your loan meets IRS requirements. To qualify, your mortgage must be secured by your main home or one additional residence, and the funds must be used to buy, build, or improve that property. The deduction applies only if you itemize and is limited to interest on a total of $750,000 in mortgage debt for loans taken out after December 15, 2017. If your mortgage predates that, you may still deduct interest on up to $1 million of principal.

IRS Requirements to Claim the Mortgage Interest Deduction

Deducting mortgage interest hinges on meeting specific IRS conditions. The mortgage loan must be secured by your home, with proceeds used solely to buy, build, or improve your main residence or one additional personal-use home. The deduction applies only when you itemize on your tax return and is subject to a loan limit of $750,000 for new loans. Interest related to rental properties generally falls outside itemized deductions and is treated differently. Ensuring your mortgage and how you use its funds meet these criteria determines how much of your mortgage interest qualifies for a deduction.

Do You Need a Secured Loan to Deduct Mortgage Interest?

Your mortgage loan must be secured by your home, meaning the property acts as collateral. This security ties the interest paid directly to the home’s acquisition or improvement. Loans used for personal residence purchase, construction, or enhancement qualify, while loans without this connection are not deductible. For example, borrowing for a vacation, rather than home improvement, does not meet the IRS standard and disqualifies the interest from deduction. This security requirement helps establish a clear link between the debt and your qualifying property.

Can You Deduct Mortgage Interest on Rental Properties?

Mortgage interest deductions apply only to loans on personal residences, including your main home and one additional personal-use home. Rental properties usually fall under deductible rental expenses rather than itemized deductions. If you rent out a second home but use it personally for at least 15 days annually or over 10% of rental days, it may still qualify for the mortgage interest deduction on your tax return. This usage test differentiates personal property from purely rental real estate for tax purposes.

Understanding how personal and rental properties are classified impacts your deduction strategy. For instance, a second home rented for 120 days but personally used for 20 days (more than 10% of rental duration) retains eligibility for the mortgage interest deduction. On the other hand, a fully rented property without significant personal use must classify interest as a rental expense on Schedule E instead. This distinction affects both how you claim deductions and which tax forms you use to report interest.

Mortgage Interest Deductions on Refinances and Home Equity Loans

You can deduct interest on a refinanced mortgage or a home equity loan—but only if the loan proceeds were used to substantially improve your home. Refinanced loans are still subject to the $750,000 debt limit (or $1 million for older loans), and the original purpose of the loan matters. If the refinance is simply to get a better rate or change terms and the proceeds aren’t used for home improvements, only the interest on the remaining balance of the original acquisition debt is deductible. For home equity loans or HELOCs, the interest is deductible **only** if the funds are used to buy, build, or significantly improve your qualified residence.

How Tax Reform Changed the Mortgage Interest Deduction

The passage of the One Big Beautiful Bill brought several changes impacting your mortgage interest deductions. Permanent extensions on key tax cuts from the Tax Cuts and Jobs Act now increase the SALT deduction cap, altering how much you can claim on state and local taxes. Some energy credits have been scaled back, while changes affect taxation on tips and overtime. Understanding these reforms helps you navigate potential savings and adjust tax planning strategies for your mortgage interest deductions effectively.

Changes Established by the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act lowered the mortgage interest deduction cap to $750,000 for new loans, down from the prior $1 million limit, and halved it for couples filing separately. It also raised the standard deduction significantly, leading many taxpayers to forgo itemizing, which traditionally includes mortgage interest. Additionally, the Act capped state and local tax deductions (SALT) at $10,000, affecting the combined deduction limits you can claim for property and income taxes.

Who Is Affected by the Mortgage Interest Deduction Cap?

Homeowners with mortgages issued after 2017 face a tighter ceiling on how much interest they can deduct, capped at $750,000 of principal. Combining multiple mortgage debts counts toward this limit, regardless of whether the loans apply to your primary or secondary residence. The elevated standard deduction means that unless your total itemized deductions—including mortgage interest—exceed these thresholds, you might see fewer tax benefits. High-income earners remain more likely to itemize and gain from the deduction compared to lower-income taxpayers.

Beyond the tighter borrowing caps, the changes prompt you to evaluate whether itemizing still delivers a better tax outcome than taking the standard deduction. For example, if your mortgage interest totals $12,000 but your overall deductions fall short of the 2024 standard deduction ($14,600 for singles, $29,200 for married filing jointly), itemizing may not lower your taxable income. Understanding how these reforms shift your deduction opportunities helps you plan mortgage financing and tax filing strategies that optimize your returns.

How to Claim the Mortgage Interest Deduction on Your Taxes

Claiming your mortgage interest deduction requires choosing between the Standard Deduction or itemizing your deductions on Schedule A of Form 1040. You’ll need to gather specific documents, including Form 1098 from your lender, which reports the interest you paid. Accurately reporting your deductible interest can reduce your taxable income, but you must ensure your loan meets IRS criteria and that total deductions exceed the Standard Deduction for your filing status before itemizing becomes beneficial.

Deciding Between Standard and Itemized Deductions

Choosing the deduction that saves you the most depends on your total eligible expenses. For 2024, the Standard Deduction is $14,600 for singles, $29,200 for married filing jointly, and $21,900 for heads of household. If your mortgage interest plus other deductions, like charitable contributions, don’t exceed these amounts, the Standard Deduction may provide greater tax relief without extra paperwork.

Which Tax Forms You Need to Claim Mortgage Interest Deduction

Form 1098 from your mortgage lender is your primary document, showing total mortgage interest and points paid for the year. You’ll need this to substantiate your deduction on your tax return. If you use your home for business or rental purposes, additional forms like Schedule C or Schedule E will be required to properly report related deductions.

Besides Form 1098, keep records of property tax payments, any home equity loan statements if used for improvements, and receipts for mortgage points paid at closing. These documents verify your claims and support calculations on Schedule A or other relevant forms. If you haven’t received Form 1098 by mid-February, proactively contact your lender to avoid delays in filing or missing out on deductions.

Can I Deduct Interest After Selling or Paying Off My Mortgage?

Yes, if you paid mortgage interest at any time during the tax year—before selling your home or paying off the loan—you can deduct that interest when you file. Your lender will still issue a Form 1098 showing how much interest you paid that year. Just remember: only the interest paid before the sale or payoff date is eligible, and it must meet the same requirements to qualify (secured by the home, used for acquisition or improvement, etc.).

Can I Deduct Mortgage Points or Closing Costs?

Yes, you may be able to deduct mortgage points paid at closing—if certain conditions are met. Points, also known as loan origination fees or discount points, are deductible if you paid them to reduce the loan’s interest rate and the mortgage is for your primary home. Points must be calculated as a percentage of the loan amount, clearly listed on your closing disclosure, and paid with your own funds at closing. However, most other closing costs—like appraisal fees, title insurance, or legal fees—are not deductible.

Does the Mortgage Interest Deduction Benefit High-Income Earners More?

The mortgage interest deduction largely favors higher-income taxpayers who are more likely to itemize their deductions and own expensive homes. While this benefit can reduce your taxable income significantly if you qualify, most lower- and middle-income families tend to take the standard deduction instead, receiving little to no advantage from mortgage interest deductions. This concentration of benefits means the deduction often acts as a subsidy for wealthier homeowners rather than a broad incentive for homeownership.

Analyzing Taxpayer Demographics

Data from recent studies show that fewer than 4 percent of taxpayers earning under $50,000 claim the mortgage interest deduction, collectively receiving less than 1 percent of its benefits. In contrast, taxpayers making over $200,000 account for 34 percent of claims and capture roughly 60 percent of the deduction’s value. The Tax Cuts and Jobs Act’s higher standard deduction thresholds have further concentrated benefits among wealthier, itemizing homeowners owning higher-priced properties.

The Trade-Offs in Wealth Distribution

Though the deduction lowers taxes for many homeowners, it disproportionately benefits wealthier individuals, contributing to wealth concentration rather than redistribution. By effectively subsidizing mortgage interest for expensive homes, the policy can inflate housing demand and prices, creating higher barriers for entry-level buyers. This dynamic intensifies wealth disparities instead of narrowing them and complicates the goal of making homeownership more accessible to all income levels.

Expanding on this, the mortgage interest deduction’s design encourages buyers to purchase more costly homes since the tax savings increase with the amount of deductible interest. This mechanism effectively raises the market value of homes by increasing demand among itemizers who can leverage the deduction, thereby pushing prices up across the board. For someone on a tight budget, these price hikes can make it harder to save for a down payment or qualify for loans. Consequently, what was meant to promote homeownership instead fuels inequality by enabling wealthier homeowners to leverage tax benefits that don’t reach lower-income groups, reinforcing wealth gaps in housing markets nationwide.

Final Thoughts on Claiming the Mortgage Interest Deduction

As a reminder, you can deduct mortgage interest on loans up to $750,000 used to buy, build, or improve your main or second personal residence, provided you itemize your deductions. This deduction can lower your taxable income by allowing you to claim the interest paid on your mortgage, including points paid at closing. Loans used for rental purposes have different rules. Evaluating whether to itemize or take the standard deduction depends on which option offers greater tax savings based on your total deductions.

Frequently Asked Questions

• Can I deduct mortgage interest if I don’t itemize? No, mortgage interest is only deductible if you itemize your deductions using Schedule A.
• Is mortgage interest on a second home deductible? Yes, but only for one additional personal-use residence, and the total debt limit applies.
• Can I claim mortgage interest paid by someone else? Generally, only the person legally liable for the loan and who actually paid the interest can claim it.

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