Refinancing your mortgage preserves most of the tax breaks you had on the original loan. You can deduct the interest on your refinanced mortgage, the points you paid at closing (spread over the life of the loan), and mortgage insurance premiums, as long as the loan balance falls within the federal debt limits and you itemize on Schedule A. Refinance tax deductions only help if your itemized total beats the standard deduction, which for 2026 is $16,100 for single filers and $32,200 for married couples filing jointly.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Most closing costs are not deductible at all.
Interest on the New Loan
The IRS treats a refinanced mortgage as acquisition indebtedness, so interest is deductible up to the balance you owed on the original loan at the time of the refinance.2Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest If you owed $400,000 and rolled that balance into a new $400,000 loan at a lower rate, all the interest on the new loan is deductible. Shortening the term, extending it, or switching between fixed and adjustable rates does not change that treatment.
The overall cap on deductible mortgage debt is $750,000 across your primary home and one second home combined, or $375,000 if you’re married filing separately. Congress made this limit permanent in mid-2025.2Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest If your balances exceed $750,000, only the interest on the portion within the limit is deductible. Mortgages taken out before December 16, 2017 still qualify under the older $1,000,000 cap ($500,000 if filing separately).3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
Cash-Out Refinancing
A cash-out refinance lets you borrow more than you currently owe and take the difference in cash. Interest on that extra amount is deductible only if you use the funds to substantially improve the home securing the loan.3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction Pull out $80,000 to remodel a kitchen and the interest on that $80,000 qualifies. Use the same $80,000 to pay off credit cards, take a vacation, or cover tuition, and the interest on the excess is not deductible. Under current law there is no separate category of deductible home equity interest — the purpose of the borrowed funds controls the deduction.
Points Paid at Closing
Points paid to buy down the rate on a refinanced mortgage cannot be deducted all at once. You spread the deduction evenly over the life of the new loan.3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction That is different from a home purchase, where points paid at closing are often fully deductible in the first year.
The math is simple. Divide total points by the number of monthly payments on the loan. Pay $3,600 in points on a 30-year mortgage (360 payments) and you deduct $10 per month, or $120 for a full calendar year. If you close midyear, the first year’s deduction is prorated for the months the loan was outstanding.
When Points Can Be Deducted Immediately
If part of the refinance proceeds pays for improvements to your main home and you meet the IRS’s requirements for the year-of-payment deduction, the portion of points tied to that improvement can be deducted right away.3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction The rest still gets amortized. If 30% of the proceeds go toward an addition, 30% of the points are deductible in the year paid and the other 70% are spread over the loan term.
Refinancing Again or Paying Off Early
If you pay off the mortgage early or refinance with a different lender, any unamortized points from the prior loan can be deducted in full that year.3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction With $2,400 in remaining unamortized points and a loan payoff, the entire $2,400 comes off that year’s return. This is a commonly missed deduction.
The rule reverses if you refinance with the same lender. When the same company issues your new loan, the leftover points from the old one cannot be written off. Instead, you add those unamortized points to any new points and spread the combined total over the new loan term.3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction Refinancing through your existing servicer for convenience quietly costs money because of this rule.
Mortgage Insurance Premiums
If your refinanced loan requires private mortgage insurance or a government mortgage insurance premium (MIP on FHA loans), those costs are deductible as mortgage interest starting in the 2026 tax year. The deduction had lapsed for several years and was reinstated and made permanent by legislation signed in mid-2025. It’s subject to the same $750,000 debt limit that applies to mortgage interest, and it requires itemizing. When your balance exceeds $750,000, only the proportional share of premiums tied to debt within the limit is deductible.
Closing Costs You Cannot Deduct
Most items on a refinance closing statement do not produce any tax benefit on a personal residence. The IRS excludes the following from the mortgage interest deduction:3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
- Appraisal fees
- Title insurance premiums
- Credit report charges
- Notary fees
- Attorney fees related to the loan closing
These are personal costs of obtaining financing. They cannot be subtracted from income, and on a personal residence they generally cannot be added to the home’s cost basis either. Refinance closing costs typically run 2% to 6% of the loan amount, so the non-deductible share adds up. Knowing that in advance helps you judge whether the interest savings justify the expense.
If the Property Is a Rental
The rules shift when the refinanced property is a rental. Mortgage interest on a rental is deductible as a business expense against rental income rather than as an itemized deduction, so the standard deduction threshold is irrelevant. You claim the interest whether or not you itemize on your personal return.
Settlement fees that produce no deduction on a personal residence get different treatment on a rental. Legal costs, title insurance, and recording fees are added to your basis in the property and recovered through depreciation over time.4Internal Revenue Service. Rental Expenses Points paid on a rental refinance are also deductible against rental income, though the amortization rules still apply. Overall the tax math tends to be more favorable on rentals because more categories of costs generate some form of deduction.
Home Office Allocation
If you are self-employed and use part of your home as your principal place of business, you can allocate a share of the refinanced mortgage interest as a business deduction. Under the regular method, you calculate the percentage of the home’s square footage used for business and apply that percentage to your total mortgage interest.5Internal Revenue Service. Topic No. 509, Business Use of Home That share goes on Form 8829 as a business expense; the remainder goes on Schedule A.
The simplified method skips the allocation. You deduct $5 per square foot of office space, up to 300 square feet, and claim your full mortgage interest on Schedule A.5Internal Revenue Service. Topic No. 509, Business Use of Home It’s easier to manage but can leave money on the table when actual expenses are high. Employees working from home generally cannot claim this deduction; it is limited to self-employed people and independent contractors.
Claiming the Deductions on Your Return
Mortgage-related deductions for a personal residence go on Schedule A of Form 1040. Interest your lender reports to the IRS goes on Line 8a. Amortized points not included on Form 1098 go on Line 8c.6Internal Revenue Service. Instructions for Schedule A (Form 1040) The deductions only help if your total itemized amount exceeds the standard deduction for your filing status.
For the 2026 tax year, the standard deduction is:1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- Single: $16,100
- Married filing jointly: $32,200
- Head of household: $24,150
- Married filing separately: $16,100
Taxpayers age 65 or older can claim an additional deduction of up to $6,000 per person ($12,000 if both spouses qualify on a joint return), phased out above modified adjusted gross income of $75,000, or $150,000 for joint filers.7Internal Revenue Service. 2026 Filing Season Updates and Resources for Seniors Itemizing pays off only when mortgage interest, points, state and local taxes, and other qualifying expenses together beat the standard amount. For homeowners with smaller mortgage balances, the standard deduction often wins.
Records to Keep
Your lender sends IRS Form 1098 each January reporting the total mortgage interest paid during the prior calendar year.8Internal Revenue Service. About Form 1098, Mortgage Interest Statement That is the starting point. You’ll also need your Closing Disclosure, which breaks out points, prepaid interest, and each non-deductible closing cost, along with the promissory note showing the loan term for amortizing points.
Keep these records at least three years after filing the return that claims the deduction.9Internal Revenue Service. How Long Should I Keep Records Because amortized points create deductions that span the entire loan, holding the closing documents for the life of the mortgage is safer. You’ll need them each year to calculate the deduction, and again if the loan ends early and you claim the remaining balance.