Mortgage Interest Deduction: Eligibility, Limits, and Points

The mortgage interest deduction lets homeowners who itemize subtract the interest they pay on up to $750,000 of mortgage debt used to buy, build, or substantially improve a qualified home. The cap drops to $375,000 for married taxpayers filing separately. Loans taken out on or before December 15, 2017, follow a higher ceiling of $1 million, or $500,000 for separate filers. The One Big Beautiful Bill Act, signed on July 4, 2025, made the $750,000 limit permanent by removing its original sunset date.

You Have to Itemize First

None of this matters if you take the standard deduction. Mortgage interest is claimed on Schedule A, and Schedule A only helps when your itemized deductions together beat the standard deduction. For tax year 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single or married-filing-separately filers, and $24,150 for heads of household.¹ Your mortgage interest, state and local taxes, charitable gifts, and other itemized items all need to clear that number combined before Schedule A saves you anything.

This calculation shifts over time. A homeowner in year three of a 30-year mortgage pays far more interest than one in year fifteen, so the deduction’s practical value fades as the loan matures. Run the comparison every year. If your itemized total falls a few hundred dollars short of the standard deduction, skipping Schedule A is the better return.

How Much Debt Qualifies

The cap depends on when you took out the loan, and it applies to your combined qualifying mortgage balance across all properties, not each home separately.

Loans originated on or before December 15, 2017: interest deductible on up to $1 million of acquisition debt, or $500,000 if married filing separately.²
Loans originated on or after December 16, 2017: interest deductible on up to $750,000, or $375,000 if married filing separately.²

If you still carry a pre-2017 mortgage and take out a newer one, the $750,000 cap on the new loan is reduced by whatever balance remains on the older loan.³

There is one narrow exception to the cutoff. If you signed a written binding contract before December 15, 2017, to close on a primary residence before January 1, 2018, and you actually purchased the home before April 1, 2018, the $1 million limit applies even though the loan closed after the date.²

Which Properties Count as a Qualified Home

You can deduct interest on your primary residence and one designated second home. The IRS definition is looser than most people expect: houses, condos, co-ops, mobile homes, houseboats, and RVs all qualify as long as they have sleeping, cooking, and bathroom facilities.² Two homes is the ceiling, but you can change which property you name as the second from year to year.

A second home that you rent out still counts, provided your personal use exceeds 14 days or 10% of the days it’s rented, whichever is greater.⁴ Drop below that and the property becomes rental real estate. The interest then moves off Schedule A and onto Schedule E as a rental expense, under a different set of rules. Mixed-use properties require splitting the interest between personal and rental days.

Co-op owners deduct their proportionate share of the cooperative’s mortgage interest, based on stock ownership.⁵ The co-op should send an annual statement showing the amount. A timeshare can qualify as a second home under the same facility rules. A home under construction can be treated as qualified for up to 24 months while it’s being built, but only if it becomes your qualified home once finished.²

Refinancing

A refinanced loan inherits the tier and treatment of the original mortgage, but only up to the balance you owed just before refinancing. Refinance a $400,000 balance into a $500,000 loan, and the interest on the extra $100,000 is deductible only if you spend that money to substantially improve the home securing the loan.² Cash-out proceeds used for credit card payoff, tuition, or a car do not qualify.

The origination date also carries over. A 2015 mortgage refinanced today keeps its $1 million cap as long as you don’t borrow beyond the old balance. Keep your original closing documents; they matter years later.

Home Equity Loans and HELOCs

Interest on a home equity loan or line of credit is deductible only when the borrowed funds go toward buying, building, or substantially improving the home that secures the debt.² The One Big Beautiful Bill Act made this restriction permanent. Using home equity to consolidate credit cards, pay medical bills, or fund a vacation produces no deductible interest, whatever the lender’s marketing says.

When the funds are used for qualifying improvements, the balance counts toward your overall cap. A homeowner with a $600,000 primary mortgage from 2020 could add up to $150,000 of qualifying home equity debt before hitting the $750,000 ceiling.

Points

Points are prepaid interest paid at closing to buy down your rate, sometimes labeled discount points or loan origination fees. Points on a loan used to purchase your primary residence can be deducted in full the year you pay them, but only if every one of these conditions is met:⁶

You use the cash method of accounting, which nearly all individual taxpayers do.
The loan is to buy, build, or improve your primary residence, and that residence secures it.
Paying points is an established practice in your area, and the amount charged is typical for the area.
You bring at least enough cash to closing to cover the points, and you don’t borrow the point money from the same lender. Seller-paid points count as yours, but you must reduce your home’s basis by that amount.
The points are figured as a percentage of the loan principal and clearly identified as points on your settlement statement.

Points on a refinance, a second-home purchase, or any loan that misses even one condition above must be spread over the life of the loan. Divide the total by the number of payments to get each year’s deductible piece. If you pay off or refinance early, you can deduct whatever unamortized points remain in that final year.

Claiming It on Your Return

Your servicer sends Form 1098 by the end of January reporting the prior year’s interest and points. Box 1 is your interest total. Check it against your own records, especially if the loan was transferred during the year; servicer errors are common.⁷ Overpaid interest refunded in a later year appears in Box 4 of the following year’s 1098.

Seller-financed mortgages don’t generate a 1098. Report that interest on line 8b of Schedule A and include the seller’s name, address, and taxpayer identification number.⁸ The IRS cross-checks your deduction against the seller’s reported income.

On Schedule A, line 8a is for interest reported on a 1098, line 8b is for interest not reported on a 1098, and line 8c is for points not already included on a 1098.⁹ If your qualifying mortgage balance exceeds the cap, Publication 936 has a worksheet for the deductible fraction.

Keep your 1098s, closing statements, and any points amortization schedule for at least three years after filing.¹⁰ Deducting interest you didn’t pay, or interest on debt over the cap, can trigger a 20% accuracy-related penalty on the resulting underpayment.¹¹

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
3
Office of the Law Revision Counsel. 26 USC 163 – Interest
4
Internal Revenue Service. Topic No. 415, Renting Residential and Vacation Property
5
Office of the Law Revision Counsel. 26 USC 216 – Deduction of Taxes, Interest, and Business Depreciation by Cooperative Housing Corporation Tenant-Stockholder
6
Internal Revenue Service. Topic No. 504, Home Mortgage Points
7
Internal Revenue Service. Instructions for Form 1098 – Mortgage Interest Statement
8
Internal Revenue Service. Form 1040 Schedule A – Itemized Deductions
9
Internal Revenue Service. Instructions for Schedule A (Form 1040)
10
Internal Revenue Service. How Long Should I Keep Records
11
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments