How to Complete the Mortgage Interest Deduction Worksheet

You only need to fill out the mortgage interest deduction worksheet in IRS Publication 936 (Table 1) if your total home mortgage debt went above the acquisition debt limit at some point during the year. If your balances stayed under $750,000 all year, every dollar of qualified interest on your Form 1098 is deductible and you can skip the worksheet. If you went over, Table 1 computes a ratio that scales your deduction down to the portion of your debt that sits within the limit.¹

When the Worksheet Applies to You

For any mortgage taken out after December 15, 2017, the acquisition debt limit is $750,000 ($375,000 if married filing separately). The One Big Beautiful Bill Act made that cap permanent, so it carries into 2026 and beyond. Mortgages originated on or before December 15, 2017, keep the older $1,000,000 limit ($500,000 filing separately). If you hold both older and newer debt, the worksheet is how you reconcile the two caps.¹

Three other situations push you into the worksheet even if your main loan is modest:

A cash-out refinance where you pulled money for something other than home improvement. The excess amount is treated as home equity debt, and interest on it is not deductible.¹
A HELOC used for anything other than buying, building, or substantially improving the home that secures it. Interest on the non-improvement portion is excluded.¹
Mortgages on more than two homes. Only your main home and one second home can be qualified residences. Interest on a third property’s mortgage isn’t deductible as home mortgage interest at all.¹

One check before any of this. The 2026 standard deduction is $32,200 for joint filers and $16,100 for single filers.² If your mortgage interest plus state and local taxes, charitable contributions, and other itemized deductions won’t clear that number, you’ll take the standard deduction and the worksheet is moot.

What to Have in Front of You

The worksheet runs on a handful of numbers. Pull these documents first so you don’t have to stop halfway through:

Form 1098 from each lender. Box 1 shows the interest paid during the year; Box 2 shows the outstanding principal as of January 1.³
Settlement statements from the original purchase and any refinance. These confirm the closing date (which fixes the $750,000 vs. $1,000,000 limit), the original loan amount, and any cash taken out at refinance.
Your December mortgage statement, for the ending principal balance.
Monthly statements if you have them, for a more accurate average balance.
Receipts, contracts, or invoices showing that HELOC or cash-out proceeds went to substantial improvements. The IRS counts adding a bathroom, replacing the roof, installing new HVAC, or building a deck. It does not count routine maintenance like painting or fixing a leaky faucet.⁴

Form 1098 reports what you paid. It doesn’t tell you how much of that is deductible. That’s what the worksheet is for.

Calculating the Average Balance of Each Mortgage

The worksheet works with the average balance of each mortgage over the year, not a single-date snapshot. Publication 936 gives you three methods, and the one you choose matters because a lower average produces a better ratio. You can also simply use the highest balance during the year, which is the fastest option and usually the worst.¹

First-and-Last Balance

Add the January 1 balance to the December 31 balance and divide by two. This is only valid if you didn’t borrow additional amounts on the mortgage during the year, didn’t prepay more than one month of principal, and made level payments on a regular schedule. For a straightforward fixed-rate loan held all year, it’s the easiest route.

Interest Divided by Rate

Divide the interest paid during the year by the annual interest rate. Paying $18,000 of interest on a 6% loan gives an average balance of $300,000. The loan must have been secured by your qualified home for the entire year and the interest must have been paid at least monthly. For an adjustable-rate mortgage, use the lowest rate during the year, which produces the highest average among the possible rates and makes this method less favorable for ARMs.¹

Monthly Statements

Add the closing balance from each monthly statement and divide by the number of months the home was a qualified residence. This is the most precise and often produces the lowest average. If your lender publishes an annual average balance, you can use that figure directly.

Mixed-use mortgages, where part of one loan is grandfathered and part is post-2017 acquisition debt, have to be tracked by category month by month. Publication 936 requires you to apply principal payments in a specific order: first to home equity debt not used for improvements, then to grandfathered debt, then to acquisition debt.¹

Filling Out Table 1

Table 1 has two parts. Part I produces your qualified loan limit. Part II applies that limit to the interest you paid.¹

Part I: Your Qualified Loan Limit

Lines 1 through 6 deal with older debt. Line 1 is the average balance of any grandfathered debt from before October 14, 1987. Line 2 is the average balance of acquisition debt taken out between October 14, 1987, and December 15, 2017. Line 3 is the $1,000,000 cap ($500,000 if filing separately). Lines 4 through 6 compare that older debt against the cap.

Lines 7 through 11 bring in your newer debt. Line 7 is the average balance of debt taken out after December 15, 2017. Line 8 is $750,000 ($375,000 filing separately). The worksheet combines the two debt categories against the combined cap to arrive at line 11, your qualified loan limit. If you only have post-2017 debt and it stays under $750,000, line 11 equals your total balance and all your interest comes through intact.

Part II: The Deductible Amount

Line 12 is the total average balance across all your qualified-home mortgages, which is just the sum of what you entered in Part I. If line 11 is equal to or greater than line 12, stop. All your interest is deductible.

If line 11 is less than line 12, the ratio kicks in:

Line 13: total interest paid on all the mortgages in line 12.
Line 14: line 11 divided by line 12, rounded to three decimal places. This is your deduction ratio.
Line 15: line 13 multiplied by line 14. This is your deductible mortgage interest.
Line 16: line 13 minus line 15. This is the non-deductible excess.

A worked example. You paid $42,000 of mortgage interest for the year. Your qualified loan limit on line 11 is $750,000. Your total average mortgage balance on line 12 is $950,000. The ratio is 750,000 ÷ 950,000 = 0.789. Multiply $42,000 by 0.789 and you get $33,138. That’s what goes on line 15. The remaining $8,862 shows up on line 16 as non-deductible interest tied to the excess debt. If any of that excess was used for business or investment purposes, part of the line 16 amount may be deductible elsewhere on your return under separate allocation rules outside the mortgage worksheet.¹

Inputs That Change the Numbers: Points, Refinancing, and HELOCs

Points

Points paid to get a mortgage on your main home are generally deductible in full in the year you pay them, provided the loan was used to buy or build that home.¹ Points paid on a refinance are different: you spread them evenly over the life of the new loan. Paying $3,000 of points on a 30-year refinance means $100 of deduction per year. Only the current-year amortized amount belongs in the interest total you enter on the worksheet.⁵ If you pay off a refinanced loan early, any remaining unamortized points come off in the year the loan ends.

Refinancing and Cash-Out

When you refinance, the new loan is treated as acquisition debt only up to the principal balance of the old loan right before the refinance. If the old balance was $600,000 and you refinanced into a $700,000 loan, only $600,000 keeps acquisition debt status. The extra $100,000 is home equity debt, deductible only if you used it to substantially improve the home.¹ Serial refinancers should hold onto every closing statement, because tracing acquisition debt through multiple refinances is the only way to allocate the balance correctly.

Refinancing a pre-December 16, 2017 mortgage preserves the $1,000,000 limit, but only up to the old balance and only for the remaining term of the original loan. Once that term runs out, the balance falls under the $750,000 cap. For a balloon note where the principal wasn’t amortized over the term, grandfathered treatment extends through the term of the first refinance, up to 30 years.¹

HELOCs

With a HELOC, the question isn’t when you opened it. It’s what you did with the money. Funds used to remodel the kitchen or add a room count as acquisition debt and feed into the $750,000 combined cap. Funds used for tuition or credit card payoff don’t qualify, and the interest attributable to them is not deductible. A HELOC used partly for improvements and partly for other spending has to be tracked draw by draw, with interest split accordingly.

Where the Final Number Goes on Schedule A

If you received a Form 1098, enter the limited amount from line 15 of Table 1 on Schedule A, line 8a. You enter what the worksheet calculated as deductible, not the full amount shown on the 1098.⁶ Interest paid to someone who didn’t send you a 1098, such as a private seller who financed your purchase, goes on line 8b, along with the lender’s name, address, and taxpayer identification number on the dotted line.¹ Points not reported on a 1098 go on line 8c. A seller-financed loan over $750,000 still runs through Table 1 the same way.

The worksheet itself stays in your files. Keep it along with every Form 1098, settlement statement, and improvement receipt that supports the calculation. The IRS recommends keeping tax records for at least three years, but property documents that establish your home’s cost basis should stay with you for as long as you own the home and three years after you file for the year you sell.⁴

What an Overstated Deduction Costs

Claiming more mortgage interest than the worksheet allows produces a tax underpayment, and the IRS charges interest on that balance. The underpayment interest rate for individuals is the federal short-term rate plus three percentage points, compounded daily, and sits at 7% for the first quarter of 2026.⁷ A careless mistake or failure to follow the rules triggers a 20% accuracy-related penalty on the underpaid tax.⁸ If the IRS treats the overstatement as intentional, the civil fraud penalty rises to 75% of the underpayment. The gap between a miscalculation and negligence often comes down to the records in your file, which is why the completed worksheet and the documents behind it are worth holding onto even though you never send them in.

1
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
3
Internal Revenue Service. Form 1098 Mortgage Interest Statement
4
Internal Revenue Service. Publication 523, Selling Your Home
5
Internal Revenue Service. Topic No. 504, Home Mortgage Points
6
Internal Revenue Service. 2025 Instructions for Schedule A (Form 1040)
7
Internal Revenue Service. Quarterly Interest Rates
8
Internal Revenue Service. Accuracy-Related Penalty