Does Having a Mortgage Help With Taxes? Interest, SALT Cap, and Credits

Having a mortgage helps with taxes only when it does. A mortgage reduces your federal tax bill if your itemized deductions, added together, exceed the standard deduction for your filing status. For the 2026 tax year, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.¹ If the mortgage interest, property taxes, and other deductible expenses you can claim do not clear that line, the mortgage does nothing for your return. If they do, every dollar above the line lowers your taxable income.

The Gate: Standard Deduction or Itemize

You have to pick one. The standard deduction is a flat amount subtracted from your income no matter what you spent. Itemizing on Schedule A means adding up specific deductible expenses instead. For 2026, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.¹ The mortgage interest deduction is only available if you itemize.²

Consider a married couple paying $15,000 in mortgage interest and $8,000 in property taxes. That’s $23,000 in the two biggest homeowner categories, and it still falls short of the $32,200 standard deduction. Without additional deductible expenses to close the gap, they take the standard deduction and the mortgage interest they paid has no effect on their taxes. The math tends to favor homeowners with larger loan balances, higher interest rates, or heavy property tax bills. Your lender sends Form 1098 by the end of January showing the interest and points you paid; that’s the starting point for the calculation.

Bunching Deductions

If your deductible expenses hover near the threshold, you can concentrate two years’ worth of payments into one tax year to clear it, then take the standard deduction the next year. Property taxes are the usual lever because timing is flexible: if the January bill has already been assessed, you can pay it before December 31 and claim it on the current year’s return. You cannot deduct taxes that have not yet been assessed.

How Much Mortgage Interest You Can Deduct

For homeowners who do itemize, mortgage interest is usually the largest deduction. Interest is deductible on up to $750,000 of mortgage debt used to buy, build, or substantially improve your home.³ Married filing separately, the cap is $375,000. The One Big Beautiful Bill Act, signed in July 2025, made the $750,000 limit permanent.

Loans taken out on or before December 15, 2017 are grandfathered under the older $1 million cap ($500,000 if married filing separately).³ Carrying both a grandfathered loan and a newer mortgage reduces the $750,000 space available for the newer one.

Loans above the cap get partial treatment. Divide the limit by your loan balance to find the deductible share. On a $900,000 mortgage, the ratio is roughly 83%; $40,000 of interest paid produces about $33,200 in deductible interest. The interest has to be paid to a lender that reports it on Form 1098.²

Home Equity Loans and HELOCs

Interest on a home equity loan or HELOC is deductible only when the borrowed money went to buy, build, or substantially improve the home securing the loan. If you used a HELOC to pay off credit cards, cover tuition, or take a vacation, none of that interest is deductible.² The IRS defines a substantial improvement as one that adds value to the home, extends its useful life, or adapts it to a new use. Your home equity debt plus your primary mortgage still has to fit within the $750,000 cap for the interest to remain deductible.

Points

Points are prepaid interest paid at closing to lower your rate; one point equals one percent of the loan. On a purchase mortgage for your primary residence, you can generally deduct the full cost of points in the year you pay them, provided paying points is standard practice in your area, the amount is typical for the region, and you did not borrow the money for the points from the same lender.⁴

Points paid on a refinance work differently. You spread the deduction evenly over the life of the new loan.⁵ Three thousand dollars of points on a 30-year refinance produces a $100 deduction each year. If you refinance again and the old loan still has undeducted points, you can deduct the leftover balance in the year the old loan is paid off.

Seller-paid points count as if you paid them, so you can deduct them in the year of purchase. You then have to reduce your cost basis in the home by the same amount, which can slightly increase a taxable gain when you sell.⁵

Mortgage Insurance Premiums

If you put less than 20% down, your lender usually requires private mortgage insurance (PMI) on a conventional loan or a mortgage insurance premium (MIP) on an FHA loan. Starting in 2026, the One Big Beautiful Bill Act treats PMI and MIP as deductible mortgage interest, restoring a deduction that had lapsed.³ The insurance has to be on acquisition debt for a qualified home, and the policy must have been issued after 2006.

There is an income limit. The deductible amount drops by 10% for each $1,000 your adjusted gross income exceeds $100,000 ($50,000 if married filing separately), and disappears at $110,000 ($55,000 for separate filers).³

Property Taxes and the SALT Cap

Property taxes on your home are deductible, but they run through the state and local tax (SALT) cap. For 2026, the One Big Beautiful Bill Act sets the SALT cap at $40,400 for most filers and $20,200 for married individuals filing separately. That cap covers property taxes combined with either your state income taxes or state sales taxes.⁶

Higher earners lose some of it. Once modified adjusted gross income exceeds $505,000 in 2026, the deduction phases down by 30% of the income above that threshold. The higher cap is scheduled to revert to $10,000 in the 2030 tax year.

Escrow timing matters. You deduct what the lender actually paid the taxing authority during the calendar year, not the monthly deposits you made into the escrow account. If you deposited $600 a month but your lender sent a single $6,500 payment to the county in November, $6,500 is the deductible amount.

Selling: The Capital Gains Exclusion

The largest tax benefit tied to homeownership often shows up at the sale. If you owned and lived in the home as your primary residence for at least two of the five years before the sale, you can exclude up to $250,000 of profit from taxable income. Married couples filing jointly can exclude up to $500,000, provided both spouses meet the use test and at least one meets the ownership test.⁷

The 24 months of ownership and use do not have to run consecutively, only add up within the five-year window. The exclusion is generally available once every two years.⁷ A shorter stay can still produce a partial exclusion if the move was driven by a job change, a health issue, or another qualifying reason.

Mortgage Credit Certificates

Some state and local housing agencies issue Mortgage Credit Certificates (MCCs) to qualifying buyers, often first-time buyers or those purchasing in targeted areas. An MCC gives you a dollar-for-dollar federal tax credit for part of the mortgage interest you pay each year. The credit rate is set by the issuing agency and runs from 10% to 50% of annual interest; when the rate exceeds 20%, the credit is capped at $2,000 per year.⁸

A credit reduces tax directly, so it can be worth more than a deduction of the same size, and it works whether or not you itemize. If you also itemize, you have to reduce the mortgage interest you claim on Schedule A by the credit amount. You claim it on Form 8396.⁸ The certificate must come from a qualified state or local government program, and the home must be your primary residence in the jurisdiction that issued it. FHA, VA, and USDA loan certificates do not qualify.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
3
Office of the Law Revision Counsel. 26 USC 163 – Interest
4
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction – Section: Points
5
Internal Revenue Service. Topic No. 504, Home Mortgage Points
6
Office of the Law Revision Counsel. 26 USC 164 – Taxes
7
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
8
Internal Revenue Service. Form 8396, Mortgage Interest Credit