The mortgage interest deduction is one of the most well-known tax benefits available to homeowners in the United States. It allows many Americans to reduce their taxable income by deducting the interest they pay on a home loan, potentially saving thousands of dollars each year. But the rules around this deduction can be complex, and not everyone qualifies. Here’s what you need to know.
What Is the Mortgage Interest Deduction?
The mortgage interest deduction is a tax break that allows homeowners to deduct interest paid on a qualified home loan used to buy, build, or improve a primary or secondary residence. This benefit is only available to those who itemize their deductions on their federal income tax return.
The deduction applies to interest paid on loans secured by your home, including:
- Traditional mortgages
- Home equity loans
- Home equity lines of credit (HELOCs), if the funds were used to substantially improve the property
It’s important to note that you cannot deduct the full mortgage payment. Only the interest portion of the loan qualifies for the deduction, not the principal or property taxes (although property taxes may be deductible separately under the state and local tax deduction).
Who Can Claim the Mortgage Interest Deduction?
To claim the mortgage interest deduction, you must meet the following requirements:
You must be the borrower
You need to be legally liable for the loan. If you’re simply helping someone else make mortgage payments, you can’t deduct the interest unless your name is on the loan.
You must itemize your deductions
This is a key requirement. If you take the standard deduction instead of itemizing, you cannot claim the mortgage interest deduction. After the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, fewer taxpayers itemize, which means fewer homeowners benefit from this tax break.
The loan must be secured by a qualified residence
This includes your primary home and a second home that you use for personal purposes. Investment properties and rental homes do not qualify unless you’re living in the home for part of the year and using it as a residence.
What Are the Limits?
The mortgage interest deduction has a few limitations that affect how much you can deduct:
- Loans taken out after December 15, 2017: You can deduct interest on up to $750,000 of qualified mortgage debt if you are married filing jointly (or $375,000 if filing separately).
- Loans taken out before December 15, 2017: You are grandfathered under the old limit, which allows interest deductions on up to $1 million in mortgage debt ($500,000 if married filing separately).
- Home equity loans and HELOCs: These are only deductible if the funds were used to buy, build, or substantially improve the home that secures the loan. Using a HELOC to pay off credit card debt, for example, would not qualify for the deduction.
You’ll receive Form 1098 from your lender at the end of the year, which shows the amount of interest you paid on your mortgage. This form makes it easier to figure out what you can deduct.
Final Thoughts
For homeowners who itemize deductions, the mortgage interest deduction can be a powerful tool to reduce taxable income. However, not everyone benefits from this tax break, especially since the standard deduction is now so high.
Before making financial decisions based on potential tax deductions, it’s important to understand how they apply to your personal situation. Talking with a financial advisor or using a tax planning app can help you determine if itemizing makes sense. And if you’re early in your financial journey, remember that a frugal lifestyle, good budgeting habits, and consistent investing in the S&P 500 may do more for your net worth than any single tax break.
Learning how money works—from books on personal finance to keeping an eye on how tax laws affect your bottom line—can help you build a solid financial foundation. The mortgage interest deduction is just one piece of the puzzle.
Winchell House 
You must be logged in to post a comment.