The mortgage interest deduction’s $750,000 cap, first set by the Tax Cuts and Jobs Act in 2017 and made permanent by the One Big Beautiful Bill Act of 2025, limits the home loan debt on which you can deduct interest. If you itemize on Schedule A, you can write off the interest you pay on up to $750,000 of debt used to buy, build, or substantially improve a qualifying home. Older loans get a higher ceiling, home equity borrowing faces tighter rules, and whether any of this helps you depends on whether your itemized deductions beat the standard deduction.
What the $750,000 Cap Actually Covers
For any mortgage taken out after December 15, 2017, interest is deductible only on the first $750,000 of acquisition debt. Married filing separately, the cap is $375,000.1Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction That limit applies to the combined balance of all loans used to buy, build, or substantially improve your primary home and any qualifying second home.2Office of the Law Revision Counsel. 26 USC 163 – Interest
“Substantially improve” has a specific meaning. Adding a room, replacing a roof, or renovating a kitchen qualifies, because each adds value or extends the home’s useful life. Repainting the living room or fixing a leaky faucet does not.1Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
If your mortgage balance tops $750,000, you don’t lose the deduction entirely. You deduct the share of interest that corresponds to the qualifying amount. Carry $1 million in acquisition debt, and roughly 75% of your annual interest is deductible. Your lender won’t calculate this for you.
Older Loans Keep the $1 Million Limit
If you took out your mortgage on or before December 15, 2017, the old $1 million cap still applies, or $500,000 if married filing separately.1Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction The protection lasts as long as the original debt stays active.
Refinancing a grandfathered loan doesn’t automatically kill the higher limit. The refinanced mortgage keeps grandfathered status up to the remaining principal at the time you refinance. Any cash you pull out above that balance is new acquisition debt, subject to the $750,000 cap, and only deductible if you use the funds to buy, build, or improve the home. Grandfathered treatment also lasts only for the remaining term of the original loan; after that, the debt gets reclassified.1Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
Second Homes Share the Same Ceiling
You can deduct interest on a second home as well as your primary residence, but the debt on both counts toward the same $750,000 ceiling (or $1 million if both loans are grandfathered).3Internal Revenue Service. Real Estate Taxes, Mortgage Interest, Points, Other Property Expenses You can’t stack two separate caps.
If you rent out the second home for part of the year, personal use has to clear a threshold for the property to count as a residence rather than a rental. You must use it yourself for more than 14 days or more than 10% of the days it’s rented at fair market rates, whichever is larger.4Internal Revenue Service. Topic No. 415, Renting Residential and Vacation Property Fall short, and the IRS treats the property as a rental, moving your interest deduction to Schedule E under the rental income rules. A second home you never rent doesn’t face this test.
Home Equity Loans and HELOCs Are Narrower Now
Interest on home equity loans and HELOCs is deductible only when you use the borrowed money to buy, build, or substantially improve the home that secures the loan.5Internal Revenue Service. Real Estate Taxes, Mortgage Interest, Points, Other Property Expenses Using a HELOC to consolidate credit card debt, buy a car, or fund a vacation means the interest is not deductible. Before the TCJA, up to $100,000 of home equity interest was deductible regardless of how you spent the money. That rule is gone.
Mixed-use draws get complicated. If you take $80,000 from a HELOC and spend $50,000 on a kitchen renovation and $30,000 on personal expenses, only the interest tied to the $50,000 is deductible. The IRS expects you to trace where the money went.1Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction Keep receipts and contractor invoices. The cleanest approach is to run home improvement draws through a separate account so the paper trail is obvious.
Points
Points you pay to take out a mortgage on your primary residence are generally fully deductible in the year you pay them, if you meet the IRS conditions: the loan has to be for your main home, paying points has to be standard practice in your area, the amount can’t exceed what’s typically charged, and you must have brought funds to closing at least equal to the points.6Internal Revenue Service. Topic No. 504, Home Mortgage Points
Points paid on a refinance work differently. You spread the deduction evenly over the life of the loan.6Internal Revenue Service. Topic No. 504, Home Mortgage Points On a 30-year refinance with $6,000 in points, that’s $200 a year. If you refinance again or pay off the loan early, you can deduct whatever points haven’t been amortized yet in that year.
Does Itemizing Even Help You?
None of this matters unless your total itemized deductions exceed the standard deduction. The TCJA nearly doubled the standard deduction, and the One Big Beautiful Bill made the higher amount permanent. For the 2026 tax year, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.7Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
The deductions that compete with those thresholds are mostly mortgage interest, state and local taxes (SALT), and charitable contributions. The SALT cap, set at $10,000 under the TCJA, was raised by the One Big Beautiful Bill to $40,000 ($20,000 if married filing separately) starting in 2025.8Internal Revenue Service. Topic No. 503, Deductible Taxes That higher cap phases out for taxpayers with modified adjusted gross income above roughly $500,000, dropping back toward the old $10,000 figure. The SALT increase is a meaningful shift for homeowners in high-tax states who previously couldn’t itemize because the $10,000 cap left them short.
A quick benchmark: a married couple with a $500,000 mortgage at 7% pays around $35,000 in interest the first year. Add $15,000 in SALT and $3,000 in charitable giving, and they’re at roughly $53,000 of itemized deductions, well above the $32,200 standard deduction. A couple with a $250,000 mortgage at the same rate pays about $17,500 in interest; add $12,000 in SALT and charity and they’re at $29,500, below the standard deduction and getting nothing from the mortgage interest write-off.
How to Claim It
Your lender sends Form 1098 each January, reporting the interest you paid, any points, and your outstanding loan balance. Multiple mortgages or a HELOC can produce more than one 1098. The interest in Box 1 of each form is what you report on Schedule A.
Box 2 shows your outstanding mortgage principal as of January 1, which is how you check whether your total debt exceeds the $750,000 cap.9Internal Revenue Service. Instructions for Form 1098 If it does, you’ll calculate the deductible percentage yourself. Publication 936 has a worksheet for this, and it’s worth working through, especially if you hold both grandfathered and post-2017 debt with different limits.
Keep records beyond Form 1098. If you’ve claimed interest on a home equity loan used for improvements, hang on to contractor invoices and payment records showing how the funds were spent. If you’re deducting refinance points, track the annual amortization. Claiming the deduction is straightforward; defending it in an audit depends entirely on the paperwork you kept at the time.